Friday, 27 November, 2020

How are loan interest rates affected?


If customers borrow a previously agreed amount of money from a bank, loan interest is payable. They are a kind of remuneration to the bank for the money lent. Customers must then repay the loan amount in installments along with the loan interest.

The most important thing in brief: This is what matters when it comes to loan interest

The most important thing in brief: This is what matters when it comes to loan interest

  • The most accurate indication of the actual cost of credit is the APR.
  • Other important types of loan interest are, for example, the borrowing rate and the overdraft rate.
  • The amount of the loan interest depends on several factors: The most important are the loan amount, the term, the amount of the repayment, the purpose of use and the credit rating.
  • In order to quickly find the loan at the right interest, it is advisable to use an online loan comparison calculator.

What is the best way for borrowers to save loan interest by comparing loans?

What is the best way for borrowers to save loan interest by comparing loans?

Special tools for loan interest rate comparisons are particularly suitable for finding the right personal loan among the numerous bank offers. The right product is quickly found from a large number of loan offers. As a result, a corresponding comparison calculator lists the individual offers sorted by the amount of interest. With the free comparison calculator from Good Finance, the search for the right loan offer is quickly completed:

  1. Enter the desired loan amount
  2. Enter the runtime
  3. select the intended use
  4. check the offers of the different providers
  5. choose the right offer
  6. and finally submit the loan application to the relevant provider !

The free telephone service from Good Finance can also be used for further questions, for example when looking for alternatives for rescheduling a current loan. An experienced loan specialist discusses in detail which financing model is most advantageous for the borrower.

What do lending rates depend on?

What do lending rates depend on?

The amount of the loan interest to be paid can vary considerably from case to case. Quite significantly, the determined interest rate payable by the general level of interest rates (interest rates), the requested loan amount, the loan term, the monthly repayment and the purpose of the loan. The following also have a major impact :

  • personal creditworthiness based, among other things, on information from Schufa
  • the monthly net income after deduction of all duties and taxes
  • the employment relationship and whether it is temporary or permanent
  • additional collateral such as a second borrower or a guarantor

Since banks often grant loans depending on the creditworthiness of customers, this can have the greatest impact on the interest rate on the loan. Under certain circumstances, the bank may even make no loan offer if a customer’s creditworthiness is poor.

What interest rate means what?

What interest rate means what?

Various types and terms of loan interest appear time and again in connection with loan interest.

Key interest rates: The level of the current interest rates on loans is largely determined by the current key interest rates of the Cream Bank. The base rate is the basis for the interest rates of the countries in the euro area. With its decision on the level of key interest rates, the central bank regulates the conditions under which credit institutions can borrow money from central and central banks. The credit institutions then pass on these interest rates indirectly to private borrowers and companies. This leads to cheap loan interest, but also low interest on savings, such as time deposits with banks.

Borrowing rate: The borrowing rate stands for the pure loan interest without any agency and administration fees, commissions or other costs of the bank. The term nominal interest rate used to be used for this. Since the consumer credit directive came into force in June 2010, the term borrowing rate has prevailed.

Effective interest rate: On the other hand, the effective interest rate actually includes all borrowing costs. This includes both the borrowing rate and all ancillary costs of a loan. It shows the borrower what he actually has to pay to the bank for the loan beyond the borrowing rate at the end of the year. This then includes such ancillary credit costs as the bank’s processing and agency fees. The consumer credit directive of the European Union (EU) obliges banks to state the effective interest rate towards their customers in the respective loan offers. This is intended to enable consumers to better compare the actual costs.

Overdraft interest / overdraft interest: Banks often grant their customers a credit line with which they can “go into the red” on their bank account in addition to the available credit. Customers receive a so-called overdraft facility (also called overdraft facility) or overdraft facility from the bank. This enables account holders to bridge short-term liquidity bottlenecks.

The bank requires a special overdraft interest or overdraft interest, which is generally significantly higher than the usual loan interest. Two-digit interest rates are still common today. Bank customers are usually given the amount of the overdraft facility as an amount on the bank statements. Changes to the overdraft interest are usually found there as well.

Penalty interest: Due to the persistently low key interest rate, many banks are now charging penalty interest on their customers’ balances. However, this often only affects very large sums.

Negative interest rates: However, the low key interest rate has a positive effect on loan interest rates. If the borrower has an extraordinary credit rating, these may even fall in the negative range at some banks.

How are loan interest rates calculated?

How are loan interest rates calculated?

Anyone who wants to calculate the actual loan interest to be paid must calculate the effective annual interest rate. In addition to the interest charged by the bank on the borrowed money, this also includes all other costs and fees for the loan. A loan comparison can be started with the loan calculator from Good Finance after specifying the net loan amount, the term and the use of the money. The result is your credit with the following information:

  • monthly loan installment
  • Borrowing rate per year
  • Effective interest rate

The annual interest to be paid can also be calculated directly in USD. To calculate the loan interest, the following formula only has to be used:

Z = (K * p) / 100

In order to calculate the formula, the amount of capital (= K) for which the interest rate is to be determined must then be inserted. The interest rate (= p) must also be stated in percent. The result (= Z) shows the total amount to be paid as interest.

Example of interest calculation:

(20,000 * 2.5) / 100 = 500 USD

20,000 multiplied by 2.5 percent divided by 100 results in 500 USD, which are payable for a loan amount of 20,000 USD for the first year. For the following year, everything is recalculated for the remaining loan amount (= residual debt) after deducting all the repayment installments already paid.

(17,600 * 2.5) / 100 = 440 USD

If, for example, after 12 monthly repayments of $ 200, the remaining loan amount is $ 2,400 lower, the formula now calculates for $ 17,600. The following year, the loan interest will total 440 USD.

Get cheap effective interest rates and take out credit

Get cheap effective interest rates and take out credit

The loan interest largely depends on the creditworthiness of the borrower: If sufficient collateral (income, property security or similar) can be offered and if the loan is intended for a specific purpose like building finance, there is often very low interest on the loan. In addition, strong interest savings can be achieved through a loan comparison. However, it is important to always compare the effective interest rate on the loans.

Online loan comparison calculators such as that from Good Finance specify the annual interest rate in addition to the annual percentage rate in the results overview. If you have further questions about loan interest or general credit, you can also use the free telephone service from Good Finance.

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