Frugal Living

Rates of Interest and All You Need to Know About Them

When we are talking about the world of finance, rates of interest play a big role. This role has significant impacts on both the borrower and the lender in these deals. If you can learn some things about the rates of interest, figuring out how they can work. This would come to your benefit, and you will be in a better position to have an edge when it comes to striking a deal. When it comes to the world of finance, irrespective of your side as the borrower or the lender, this helps!

If we look at it from the borrower’s point of view, what is the rate of interest? It is the price that they pay for using the money, as some sort of a credit amount. Again, from the lender’s viewpoint, it is the ‘fee’ that they earn. Why? Because they have taken a risk to credit you, the borrower, the said amount of money. But what if it is about an investor? Or someone who is looking to save some money? Then rate of interest represents the sum that they would get if they make an investment. This could be in a bank account or a fixed deposit. Not knowing about interest rates can be detrimental. This would mean that business deal outcomes may turn negative. Would you put a lot of money for offering when you know you could have gone for a better deal?

Here is a skinny on the rates of interest, and why they are the crux of the finance-world.

Lowest Personal Loan Interest Rates:

Let us start with personal loans. To get the lowest personal loan interest rates, you need to understand what is an interest rate. So, what exactly is an interest rate? To answer this question, we can say that a rate of interest is the sum of money a creditor charges you to use their money. The principal amount is the amount you need to borrow. The rate of interest is what the person (or organization) charges to let you. For what, you may ask? For letting you use that sum of money for a fixed time.

Rate of Interest versus Annual Percentage Rate: 

The annual percentage rates, and rate of interest are misunderstood. People who are borrowing tend to make this mistake. They usually think that both terms mean the same. While the two of them do come from the same financial family, there are some points of difference:

  1. The rate of interest is usually the rate which the borrower charges on top of the principal amount that is lent. This is the money which (by now you know) is the amount charged by the lender to let the borrower use their money.


  1. But, there is a stark contrast. An annual percentage rate represents the annual amount of ‘extra’ money. Mind you, it is not the interest amount. This borrower pays on top of the principal amount plus interest rates. These can be due to factors such as brokerage fees, origination fees, and discount points, and so on.


How to Get Yourself a Low Rate of Interest? 

There are quite some factors that play a huge role when it comes to influencing the interest rate. The personal loan that you are taking out for yourself, can fluctuate on some factors. We would highlight a few of them for you, and help you understand how these factors can work for you:


  1. Your credit score, and your credit history: The credit history and credit score of a person shows off how worthy they are to get loans. Simply speaking, a higher credit score would mean you are not likely to take the money and run away. Hence, you stand a fair chance of getting a loan approval with a low-interest rate.


  1. Your income: This is easy, if you have a higher income slab, then the chances of you returning the money is higher. So, the chances of getting your loan approved is higher as well. This can usually translate into a pretty low rate of interest.


  1. The ratio of utilizing credit: This indicates the ratio between the credit amount you used. And the credit amount ceiling that is allotted to you. Usually, lower credit use ratios yield to lower interest rates. This is useful when it comes to drawing out a personal loan


  1. FOIR: FOIR means Fixed Obligation to Income Ratio. means the already-existing EMIs and dues that you need to pay. This is true if you have a large part of credit dues and EMIs. This would mean that you will have only a small sum of the amount you have earned. Hence, it is advisable to maintain a lower FOIR to get the lowest personal loan interest rates.


  1. Loan Applications: Always avoid applying for personal loans with many lenders, at the same time. This usually implies that you are hungry for credit. If you have many credit reports within a short time-span, it affects your credit score. But it can also affect the likelihood of getting an approved personal loan.


  1. Relationship with your lender: The relationship you share with your lender can affect your rates of interest. This stands true when you are trying to draw out a personal loan. For instance, the interest rate would be lower if you draw a loan from the same bank where you have an account. This is as compared to any other banks.


To Conclude

These were the few pointers, tips, and tricks when it comes to personal loans. This was also meant for interest rates, and how to get an approval for personal loans. We tried our best to condense the entire financial world into something as simple and easy as we could. This was so that you can understand and grasp the subject matter much better than anyone else. And guess what? You don’t even need to pay for a consultant. Yet, keeping in mind that the lowest interest rates are (in quite a few cases) not the best suited for you as a customer. Hence would tell you to find that perfect breakeven point that would suit you the best.

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