Interest Rates
An interest rate can be defined in two ways. It is either a borrowing rate or a lending rate. The borrowing rate is the cost of borrowing money while the lending rate is the charge for lending money.
In general, interest rates are charges for the use of funds within a predetermined period of time. They are expressed as a percentage of the aggregate outstanding balance that can either be fixed or variable. For example, if you apply for $100 loan with a 10 percent interest, you need to pay an additional $10. In total, you will be charged $110.
Generally speaking, interest rates are classified according to the maturity period. They can be short-term, medium-term or long-term.
· Short-term – less than one year
· Medium-tern – one to five years
· Long-term – more than five years
Rates also differ according to the type of instrument you choose. There are two major types of instruments: traditional deposit instruments and investment instruments. Traditional deposit instruments include time deposit, savings deposit and current accounts. On the other hand, investment instruments include securities and bonds.
Aside from these classifications, you also need to know what real interest rates are. These are interest rates that are adjusted for the expected purchasing power erosion resulting from inflation. For example, if the current inflation is 5 percent and the nominal interest is 10 percent, the real interest rate of return is 5 percent.
It is the bank, credit union, mortgage lender or whatever financial institution you borrowed money from that determines the rates at which you can lend money. Bear in mind, however, that interest rates are usually influenced by how much the institution paid to borrow the money in the first place. In most cases, lenders also borrow the money they lend to their clients. Aside from that, the rise and fall of interest rate levels are heavily influenced by several economic factors such as the inflation rate, intermediation cost and fiscal policy stance.
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On $22,000 at 4.5% over 5 years at $400.00 a month how much would interest be? THANKING YOUon 2009-08-21 at 10:51:21
I need to know what the prime interest rate was on February 14, 2004 in Atlanta GA.... Thank You.... Niccion 2009-02-27 at 03:24:20
please i wolud like to find out how could i know the evolution of the reference interest rate (discount rate) in the last ten years of argentina! it is possible?on 2008-09-23 at 00:56:42
I'd like to get a loan for a condo unit I am planning to buy. Can you recommend me to any banks that can give me loans with reasonable interest rates? I am from the US by the way.on 2008-04-29 at 23:20:03
hi anyone help i'm after a list of the interest rate for the uk,for the past 30yrs, or a web site.cheers. tonyon 2008-04-17 at 09:59:47
Please i will love to get the history of interest rate in nigeria. you are really doing nice work. I want to use it as a research work. thank you