Very often, we hear that interest is applied to certain monetary or other operations. In addition, there are operations and purchases exempt from these interests. We know that payment terms for loans and credits are subject to interest, but what types of interest are there and what are they? What determines the value of interest?
The amount of money that the borrower (the applicant) must pay
It is above the value granted by the entity as a loan or credit is called the interest rate or interest rate. That is, this is the price of the loan or credit, it is what the entity charges for the service.
The interest has a price determined by several factors and is established as an amount of money to be paid in a given time. Whoever lends the money charges the borrower for using his money over a period of time agreed in the loan conditions. That is why interest is also known as the price of money in the financial environment.
The interest rate is usually written as a percentage that represents a relationship between the assumed risk and the profit that could be had with a sum of money. This relationship varies according to the market situation and other factors as well as time. There are two clearly differentiated interest rates : fixed and variable interest. Each of them assumes the risks in a different way.
Interest rates on loans vary depending on the situation in which the money is granted or received, that is, there are different prices for the money in each case. This is the reason why we find different interests (prices) in government bonds, in long-term deposits, investments, etc. Otherwise, it would not be profitable for the entities, nor would the client be interested in choosing one mode of investment or another depending on their situation. advertisements
Interest is higher when there is more risk in the loan.
For this reason, state bonds have a lower interest than a bank deposit. A country cannot be ruined (speaking in a financial sense) but a company or a particular person can end up in bankruptcy. This type of risk is what marks the price of interest at all times and these fluctuate according to the changing conditions of the economy, markets and customer needs.
This is an entry on a series of articles related to the generalities and characteristics of loans and credits where we try to bring the user information that we consider of great interest before applying for any of the types of loans that exist in the financial market.