Lending Interest Rates

 

 

Lending interest rates are rates banks and financial institutions impose on a borrower. Borrowers pay interest to lending institutions for using money they do not own. Different lending institutions charge different interest rates based upon the lender, the type of loan, economy, tenure of the loan and customers’ credit score and credentials.[br]

 

Annual lending interest rates can range from 4% to 15% or higher. Interest rates have substantial effects on how much a borrower pays to a lender. Let us look at an example; if a person borrows $100,000 at 8% interest rate; the monthly payment will be $733. If the interest rate is 13%, the monthly payment will be $1,106. Because of this significant change borrowers are advised to negotiate with lenders for the lowest possible lending interest rates.

 

Lending Interest Rates – Prime Rate or Prime Lending Rate

 

Prime rate is the rate banks charge their creditworthy customers. This rate is almost the same among big banks. The prime rate changes based upon the changes to the Fed Funds Rate. Banks use prime rate as an index while calculating rate changes to Adjustable Rate Mortgages (ARMs) and other variable interest rates related to short term loans. Some banks also use prime lending rate in the calculation of private student loans. Prime rate is used to specify the rates of home equity lines of credit and cards as well. Usually a ‘spread’ or margin is added to the prime rate and used by lenders for loan purposes.[br]

 

Lending Interest Rates – Secured Loans and Unsecured Loans

 

The lending interest rates for secured loans and unsecured loans differ substantially due to different amount of risks associated with them. Secured loans require the customer to use certain assets as collateral. For example; a home equity loan is a secured loan in which the home is collateral. Whereas unsecured loan is the one that does not require collateral. Credit card debt is an example of an unsecured loan. Since the risks associated with secured loans are lesser, they always carry lower lending rates.

 

Before applying for any loan, check the lending interest rates and other costs from various banks with online financial calculators. This small exercise can save you lot of money.