When an individual borrows money from a lender, such as a bank, he or she will have to pay that money back with an added fee. This added fee is called interest, and interest is determined by a percentage rate. That rate requires an individual to pay a percentage of the money he or she borrowed on top of paying back the borrowed money.
In many cases, interest rates are determined by a number of factors, some of which deal directly with the person borrowing the money. Some of the factors that may contribute to your specific rate include:
- The borrower’s credit history
- The amount of money the borrower requests
- The state of the economy
- The size of the lending institution
Each of these factors may contribute to a larger or smaller interest rate. Usually, an individual with a clean credit history who requests little money in a strong economy from a small institution will receive the lowest rates. If the opposite is true of an individual, he or she will receive the highest interest rates.
It is difficult to determine what kind of rate you will receive before you request a loan, as rates may change from day to day in some cases. With added interest, an individual may find it difficult to make payments on borrowed money when his or her income shrinks or expenses rise. When this is the case, some financial institutions will work with you to lower your rate, though many will not.
Interest rates drive our country’s system of lending and borrowing, but sometimes they get to be too much for us to handle. If this is your case, you may need to declare bankruptcy.