Loan interest is the payment for a loan

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Loan interest is the payment for a loan
Loan interest is the payment for a loan

Video: Loan interest is the payment for a loan

Video: Loan interest is the payment for a loan
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When a person does not have enough own funds for a major purchase, treatment, education, he is looking for an opportunity to borrow this money. In order for the creditor to have a desire to give this or that amount for temporary use, in addition to confidence in the solvency of his clients, he needs some remuneration.

Basic concept

The interest rate is
The interest rate is

Loan interest - this is the fee that the owner of the funds charges for the use of them. This economic category appears in commodity production on the basis of emerging credit relations. The interest rate is the equilibrium point that occurs between supply and demand. The movement of borrowed funds occurs from the person (or organization) that issued the loan to the borrower. Interest is paid in the other direction. Thus ends the circuit of value.

Method of calculation

So, the loan interest is the balance point between the supply of funds and the demand for them. His bet is calculated using the following formula:

Stavka=GD/S100%, where Stavka is the interest rate, GD is the annual income of the owner of funds (creditor), S is the amount of the capital that is issuedon loan.

Interest rate
Interest rate

Loan interest is what the borrower pays attention to first of all when applying for a loan. There are real and nominal rates. The first of them takes into account changes in inflation. The second is not, because it reflects the relationship that exists between the amount returned by the borrower and the amount of the loan received. This is the money that is paid out per unit of loan over time. It is worth noting that the real rate is the basis for making investment decisions.

What affects the amount of the bet?

Loan interest is a category (economic), depending on a number of factors:

- From various risks. This is a typical feature of the market. They exist when concluding agreements with suppliers, when manufacturing new products, and so on. The lender's risk lies in the risk of non-return of his funds. The higher it is, the higher the percentage will be.

Interest rate
Interest rate

- In addition, the loan interest is a value that depends on the term of the loan. If it is small, then the lender has fewer missed opportunities to use the money that he gave for temporary use. In this case, the percentage will be lower. As the time period increases, its value increases. This happens not only because of the large number of missed opportunities, but also because of the high risk of non-repayment of funds.

- The level of loan interest depends on the security of the loan. Collateral is property or valuables given by the borrower for the loan period. If he does not repay his debt, the creditor maydispose of the pledged object. This reduces his risk by reducing the percentage.

- From the size of the loan. The interest rate is higher for a smaller loan. Administrative costs do not depend on the size of the loan. Therefore, with a smaller loan, the rate will be higher.

- From taxation of income (percentage). Some loans are subject to taxes. Their rates are included in the loan.

- From competition. With its growth, rates decrease, this is especially clearly seen with an increase in the number of banks.

It can be concluded that the loan interest rate (rate) is a value that changes over time and depends on various factors.

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