If you ever need to take out a loan, you’ll need to know what an interest rate is and how it will affect the terms of your loan. Interest rates affect nearly everybody, of course, but not everybody understands them. In this blog, you’ll learn the answers to some of the most commonly asked questions about interest rates.
What is an interest rate?
An interest rate is essentially a fee you are charged for taking out a loan . When you take out a loan from a lender, the total amount of money you are lent is known as the principal. A percentage of that principal is then applied to the amount of the loan you have not paid back yet. This percentage is the interest rate.
What influences my loan’s interest rate?
When a lender looks at a potential borrower, one of the things they are calculating is how likely it is that the borrower will default—that is, not be able to pay back the loan. That’s why they look for borrowers who have good credit histories . If you consistently pay your bills and your rent on time, it’s more likely that you’ll be able to obtain a loan with a low interest rate.
What is the difference between a fixed and a variable interest rate?
Some loans are taken out with fixed interest rates, meaning that the rate remains the same while it is being paid off. Others are taken out with variable interest rates, meaning that they change over time according to the changing status of the prime rate, the interest rate that banks tend to charge to their best customers.
Alpine Bank serves more than 130,000 customers across the state of Colorado, providing essential financial services ranging from asset management to electronic banking services. They pride themselves on building strong and lasting customer relationships. If you would like to learn more, contact their location in Steamboat Springs, CO, at (970) 871-1901.