If you are planning on taking out any type of loan then the most important factor that you need to keep in mind is the interest rate. The thing about interest rate is that it is affected by a number of factors so these factors can either increase it or decrease it.
So if you are going to get a loan then you need to consider the factors that can affect your interest rate so that you can take appropriate action and make a rational decision. Let us look at some of the factors that affect your interest rate.
1. Supply and demand
Supply and demand of money also affects the interest rate. Banks don’t lend you their money. Instead they lend you the money that is deposited in the saving accounts of the public. If the public tends to take out money from their saving accounts it will decrease the supply which will increase the interest rate. Same is the case with demand. The more people demand for the loans, the higher the interest rates will go because banks love to make profits from interests.
Inflation is one of the factors that work in your favor but not for the lenders. It will increase the interest rate but if you have a fixed rate then it won’t affect you but it will affect the profit ratio of the lenders.
3. Federal funds rate
Federal funds rate is the rate that the financial institutes charge one another for loans. It is set by the Federal government. When the economy falls, the government lowers the rate so that more individuals borrow money to balance the economy.
4. Credit score
Your credit score also affects the interest rate you get for larger loans such as mortgages and in case of personal loan Singapore. So make sure that you have a suitable credit score before you take out any large loans because it will definitely increase your credit score.
5. Amount of loan
The amount of loan that you borrow also affects the interest rate. The higher the amount is the higher the interest rate will be. So make sure that you only loan the amount that you really need. Excess amount will make it hard for you when it comes to repayments.
6. Duration of loan
The duration of your loan can affect your interest rate as well. When you loan an amount for a larger time period, your interest rate automatically increases which makes it hard for you to pay back the money.