Who decides the interest rate on my consumer loan?

consumer loan

Why should it interest on the loan? Age, property, and creditworthiness are interest rate controlling factors. Get cheap interest rates.

There are many financial concepts to control when taking out loans. You get interest when you deposit money and pay when you borrow, but who really decides the interest rate on your loan?


Why should it interest on the loan?

loan interest on the loan?

No matter which loan provider you borrow from, you must pay interest. Interest is expressed as a percentage, and the percentage is deducted from the loan amount. The nominal interest rate is the interest rate usually stated as the interest rate on the loan. Then there is also the effective interest rate, which indicates how much the loan costs in total. You can read more about nominal and effective interest rates here. For example, if you borrow $ 10,000 with a nominal interest rate of 4.6%, this is an amount of $ 460. The $ 460 is the amount the lender earns from lending money to you. Borrowing money is a business for banks and credit providers, and therefore they must also charge a price for their loan service.


The interest rate also secures the borrower

interest rate also secures the borrower

The most important thing for lenders is to ensure that the borrower can repay the loan. Therefore, the interest rate also varies according to who the borrower is. The greater the risk, it is for the borrower to wonder about the repayment, the higherthe interest rate on the loan. This allows lenders to make sure they get back as much money as possible. Therefore, there is often a higher interest rate on loans offered without collateral in real estate or with a surety. If you are young, you have statistically also poorer finances, and can therefore also have difficulty obtaining loans with low interest rates. If, on the other hand, you have a good financial footing, you may be able to borrow at a lower interest rate, because the lender sees it as more secure that you can repay your loan. This is also called creditworthiness.

This may seem unfair, but on reflection it makes quite sense. You probably also lend money to your friend, who has a permanent job and who you know will repay the loan. For lenders this is even more important, they have to repay their loan, otherwise their business goes bankrupt. If the lender is a banking business, it is no use to run out of money because you have lent the money to customers who do not repay.

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