Interest rates are a big part of every person’s financial life, from loans and credit cards to saving money in the bank. But understanding exactly how rates work can be a little confusing.
The interest rate you pay or earn depends on a few factors, including the amount of time it takes to repay the initial sum borrowed (or invested), how often your interest is compounded and how much you borrow or save. Our articles below will break down the different types of interest rate and help you better understand how they’re calculated.
A person or company can choose whether to charge you a fixed or variable interest rate, with the latter being subject to change over the course of the loan or savings term. The difference between the two can be significant.
Lenders may look at personal information such as your FICO credit score and other financial documents to determine the interest rates they offer on loans and credit card purchases. A higher credit score usually means a lower interest rate, as lenders will view you as less risky and able to repay debt.
Economic trends also influence the interest rates that are offered by banks and other lenders. Low interest rates stimulate economies by providing individuals and businesses with access to inexpensive loans, which in turn spurs spending and investment in riskier assets. However, over time, low rates can lead to market disequilibrium resulting in inflation.