Some Top Factors which Influence the Rate of Interest

If you are a credit card user or you have applied for loan from any bank, then you must have often wondered that what it is which actually affects the rate of interest that you are charged. This is why you must now read ahead to put an end to the mystery. With this knowledge, you will know and understand the market conditions better and you can plan your work accordingly. the interest rate is vital for you because depending on that, you need to pay a certain sum to the bank. It is a direct deduction from your hard-earned money.

  1. Demand and supply: It is surely no new concept for you that if something is in demand, that is, if a lot of people want to have it, then the prices of that commodity go up instantly. Well, similar is the case with interest rates if too many people wish to take the loan, then the interest rate is bound to shoot towards the sky.
  2. Any condition of market inflation: Well, it is absolutely fine if you do not know the meaning of inflation. What happens in case of inflation is that the prices of everything is the market suddenly go up. This means that it is obviously going to have an impact on the purchasing power of the citizens. This means that the lender is going to suffer due to the low purchasing power. This is why there is then an increase in the interest rate. This is done in an effort to be able to cover up for the revenue that is lost.
  3. The amount of your loan and the duration for which you want it: Now, this is surely the simplest point on this list. I am sure that you know how a loan work. You first take the amount from the bank and then repay it monthly with the interest that is charged. This means that the longer the duration and more the sum borrowed, the more will be your interest rate. This is why it is advised by us as well as our financial experts that you should first sit down with a clear mind and determine the loan amount that you actually need. other than this, you must also figure out the shortest time span possible within which you will be able to repay the loan. Study all your possible avenues of income and then decide before taking the plunge.
  4. Credit score: For those who do not know about this, in the simplest of terms, the credit score is nothing less than your representative in terms of creditworthiness. There are a number of ways in which you can maintain a good credit score. With a good score, you can be sure that the interest rate charged for you will not be too high. On the other hand, if you have a low credit score, then there are chances that the interest rate will be high or the lender will simply reject you.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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