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A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.




Loan Rate

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.

 




 
 
 
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