How to Choose an Appropriate Interest Rate When Applying for a Loan

2017 Real Estate Results | Magilla Loans

Borrowing money is a need for some people and not everyone has enough income to meet their daily needs, not to mention the sudden need that requires a person to pay large sums of money in a short span of time. This article will highlight the basic capabilities everyone should have (who want to borrow some money) to determine the best loan rate.

A key element to a loan is the amortization table, and determining an appropriate interest rate for a loan application is easier than it seems. In the first place, it is necessary to have complete information not only of what a rate really is, but also of the types that exist and the forms of interest offered by the financial market. Secondly,  one needs to know details of the behavior of the debt throughout the term established to pay it.

Information about the rate

The interest rate is the percentage to which a capital is invested in a unit of time. In other words, it is “the price of money in the financial market”. In general terms, at the individual level, the interest rate (expressed in percentages) represents a balance between the risk and the possible gain (opportunity) of the use of a sum of money in a given situation and time.

To make the decision of choosing best rate loans, the interest rate must take into account that an appropriate combination between terms and rates can represent better benefits at the time of receiving credit approval. It is important to be clear that the interest rate represents the benefit of a loan if it is determined in an appropriate way and that for this, before signing, one must know exactly what the quota will be during the entire behavior of the debt. Therefore, before discussing deadlines, mention should be made of the most common types of fees:

  • First, the preferential interest rate is a percentage lower than the “normal” (generally used rate) or general rate that is charged to loans destined for specific activities that you want to promote either by the government or a financial institution.
  • Secondly, the active interest rate is the percentage that the banking institutions, in accordance with the market conditions and the central bank’s provisions, charge for the different types of credit services to the users of the same. They are active because they are resources in favor of banking

The above can be given, in due or anticipated form. In turn, there are deadlines that can be short, medium and long. You can choose based on your needs and expectation. The short term refers to periods not exceeding one year. The medium, to periods of between 1 to 2 years. And the long is 10 or 15 years maximum. It is important to keep in mind that the longer the payment period, the more money that will be paid for the approved loan. Hopefully you can get benefits from this short article. Be smart!


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