When taking out a loan, your lender will explain details of the interest rate and the way that the interest rate impacts your monthly payment, but this can be a confusing process for new borrowers. It’s especially hard to understand how this works without some basic information, and some lenders simply don’t take the time to make sure that their borrowers fully understand the complexities of interest rates. This guide will help you better understand the differences between types of interest rates, allowing you to make a more informed, better decision about whether or not one of our safe, reliable and no-credit check car title loans is a good idea for you.
First, comes the question what is interest, and what is an interest rate? Interest is simply defined as the cost of borrowing money. Typically, interest is expressed in a percentage, and is used to calculate how much money you’ll need to pay your lender for the convenience of receiving a loan from them. In lending, the amount of money you originally borrowed is called the principal, which you’ll have to pay back, along with the added cost of borrowing the money, which is referred to as interest. If you borrowed $1,000, and had an interest rate of 10%, then you’d owe $1,100 to your lender, since you owe the original principal amount ($1,000) plus the interest cost (10% of $1,000, which is $100).
Interest comes in a variety of forms though, which is where some people get confused …
Fixed interest rate loans are the simplest types of loans, and typically, the best for consumers. They come with an interest rate that won’t fluctuate over time, isn’t tied to market conditions, or anything else – because it’s fixed. When you take out a fixed interest rate loan, you know exactly how much money you’ll need to pay back over the lifespan of the loan, because it’s easy to calculate the total cost of added interest. The major advantage to getting a fixed interest rate loan is that you’re protected from rising interest rates, better able to plan your finances well into the future, and can easily plan a monthly budget since you know the exact price of your monthly payments. Downsides to fixed interest rate loans are that you can’t take advantage of rate reductions (should interest rates fall), and other potential additional costs like not being allowed to pay more than your monthly payment, or not being allowed to pay your loan off early. With variable interest rate loans, lenders reserve the right to update interest rates at some specified point in time so that they match prevailing market conditions. Typically, these types of loans are worse for borrowers, since a lender would only update the interest rate if the rates have risen since they originally issued the loan, thus making the borrowers monthly payments more expensive.
If you take out a variable interest rate loan, then you don’t know what your monthly payments will be as soon as the interest rate is allowed to fluctuate, since you can’t predict whether or not interest rates will rise and fall by that time, or by how much they might change. The good news about variable interest rate loans is that they typically don’t come with restrictions on making additional payments (meaning you can pay the loan off early), but this isn’t always the case. The bad news about variable interest rate loans is that they often end up costing borrower’s way more than they originally thought, since increasing the interest rate can dramatically inflate the costs of the loan. Learn more at https://auto-loans-online.wixsite.com/theblogger/home/auto-financing-tips-and-tricks