When a person does not have enough own funds for a large acquisition, treatment, training, he is looking for an opportunity to borrow this money. In order for the creditor to have a desire to give this or that amount for temporary use, in addition to confidence in the solvency of his clients, he needs some remuneration.
Basic concept
The loan interest - this is the fee that the owner of the funds charges for using them. This economic category appears in commodity production on the basis of emerging credit relations. The size of interest is the equilibrium point that arises between supply and demand. The movement of borrowed funds occurs from the person (or organization) that issued the loan to the borrower. Interest is paid in a different direction. This completes the circuit of value.
Calculation Method
So, loan interest is a point of equilibrium between the supply of funds and the demand for them. His rate is calculated by the following formula:
Stavka = GD / S * 100%, where Stavka is the interest rate, GD is the annual income of the owner of the funds (lender), S is the amount of the loan capital.
Loan interest - this is what the borrower pays attention primarily when applying for a loan. There are real and nominal rates. The first of them takes into account the change in inflation. The second is not, as it reflects the relationship that exists between the amount returned by the borrower and the amount of the loan received. This is the money that is paid per unit of the loan for some time. It is worth noting that the real rate is the basis for making investment decisions.
What affects the value of the bet?
Mortgage interest is a category (economic) that depends on a number of factors:
- From different risks. This is a characteristic feature of the market. They are at the conclusion of agreements with suppliers, in the production of new products and so on. The lender's risk is the risk of non-return of his funds. The higher it is, the greater the percentage.
- In addition, the loan interest is a value that depends on the loan term. If it is small, then the lender has fewer missed opportunities to use the money that he gave for temporary use. In this case, the percentage will be lower. As the term grows, its value increases. This happens not only because of the large number of missed opportunities, but also because of the high risk of non-return of funds.
- The level of loan interest depends on the security of the loan. A pledge is property or values given by the borrower for the crediting period. If he does not repay his debt, the creditor may dispose of the pledged object. This reduces his risk by reducing the percentage.
- On the size of the loan. The interest rate is higher for a smaller loan. Administrative costs are independent of loan size. Therefore, with a smaller loan, the rate will be higher.
- From taxation of income (percent). Some loans are tax deductible. The size of their rates are included in the loan.
- From competition. With its growth, rates decrease, this is especially evident with an increase in the number of banks.
We can conclude that the rate of loan interest (rate) is a value that varies over time and depends on various factors.