What is a Loan rate?
Loan rates are Interest paid per year divided by principal
amount; it is expressed as a percentage also termed as Annual
Percentage Rate (APR).
Interest is the fee charged by a lender to a borrower for the use
of borrowed money, calculated on:-
Annual percentage of the principal,
The time period of money borrowed,
Credit ability of the borrower and the inflation rate.
Principal amount is the total amount borrowed or total loan taken
on which the loan rate will be calculated.
Lender is the person who lends money or who gives loan. This
lender can be a private, public or institutional entity which
makes funds available to others to borrow. Before you take a loan
Remember to compare interest rates or the quoted APR's of each
lender As the Rates will vary from lender to lender. Loan rates
can be fixed for the loan period or variable and change in line
with market rates.
Loan rates can basically be of two types:-
Fixed loan rate and variable loan rate: - Choosing between
a variable-loan rate and a fixed -loan rate depends
on the initial difference between the two loan rates.
Fixed loan rate:- In a fixed loan rate the interest
rate charged by a finance company remains fixed throughout the
term of the loan, which means that the consumer is not affected to
fluctuations in loan rates. The financing company bears the
risk of rising loan rates. Your cash flows is not affected
in any cost. In a fixed loan rate you will know exactly
what the repayment will be for the period that has been fixed. It
is beneficial in making your budget but you may be the looser if
loan rates come down as, the rates are fixed you will be
paying the same rate which has been fixed for you.
Variable loan rate: - It is just the opposite of fixed loan
rate. Here the interest you will be paying on your loans
changes along with the current loan rates. If the loan
rates are less you will be paying less and if it is high you will
have to pay accordingly. A loan in this type can be paid off
before the time period if the borrower has the capability of
paying of his loan thus he can save on his loan rates which
he had to pay if he had taken loan for fixed loan rate.
Usually loan rates depend upon the following Factors:-
The amount of the loan.
The term of the loan.
Credit track record.
Your current financial circumstances.
Purpose of the loan.
And whether it is a secured loan or unsecured loan.
Economic and political conditions affect the loan rates at
a particular time period.