Different people usually use loans for different things. There are people who usually use loans to furnish their homes, and there are others who use them to buy cars, homes, machinery or even expand a business. Therefore, there are different people who usually look for various loans. It is nonetheless important that people looking for loans, ensure that they know the various types of loans and the various interest rates used on them.check this out!
Banks do not usually come up with interest rates arbitrarily; they usually come up with them based on various factors. For example, a bank usually looks at the risk of a loan, so that they can come up with an interest rate. Thus, if a loan is high risk- has no collateral- the rates used on such a loan will be high. This is so that the bank can be able to recover part of its money in case a person defaults. However, if a loan requires that a person leaves collateral, then the rates of the loan will be low. This is because even if a person defaults, then the bank will not get any loss.see sample of loans from https://home.bt.com/lifestyle/motoring/motoring-news/drivers-urged-to-research-car-loans-11363984715804
However, the major types of interest rates used by banks and financial institutions today are two. These include:
Fixed Interest Rate- This is a type of interest rate that does not change with the times. It is fixed, and a person usually pays a fixed amount of money every month. There are people who prefer this type of interest because they never have to worry about paying more money. Therefore, they can be able to budget their expenditure to cover the loan costs.
Variable Interest Rate– On the other hand, the variable interest rate is just that, variable. This is an interest rate that usually changes according to the market forces. Therefore, the interest amount may fluctuate, either going high or low. There are people who prefer this type of loan, so that in case the rate lowers, then they may end up paying a much small amount of interest on the overall loan.
So, there are many different types of interest rates that are used in various loan types. It is the reason, a person needs to shop around and determine the various rates used in loans that one may be interested in. If this is ignored, a person may end up getting a loan with an interest rate too high to pay.