Interest rates on loans
The amount or a price which a person pays for the temporary use of some other persons funds is known to be as the interest. It can also mean the payment which someone obtains for giving up the capacity of spending the money on temporary basis for the intension of lending money to someone else.
This states that there is a great relationship between the borrower and the loan lender. If there is no interest involved in the loan no loan lender will allow a person to borrow the loan. On the other hand, borrowers are satisfied to spend the loan amount when they get a good deal from any loan lender.
For instance, if a person intends to borrow 100 dollars per year, then the rate of interest would be around 10 percent per year. One of the main reasons why these rates of interests are charged so much is that these rates are expressed as percent per year. At the end of the year the borrower has to pay 100 dollars which he owed along with 10 percent interest charged on the amount he owed. There are many reasons why interest rates are charged, however they are entirely different from the viewpoints of a borrower and the loan lender.
From the loan lenders viewpoint, an interest rate makes up enhancing the prices of products. This is the best means to reimburse the loan lender for offering the powers to purchase by providing his money to borrowers. An interest rate even makes up for the risk involved for a loan lender when lending money to the borrower. For the bank lenders the rate of interest allows them to run their business profitably.
From the borrowers viewpoint, an interest rate allows the borrower to spend the loan amount at the same time rather than spending it later. The rate of interest also allows a borrower to make more or large expenditures like home improvements, purchasing a car etc. by obtaining interest rates, education also becomes affordable for some of the students. However, willingness to pay back the loan wit rate of interest allows borrowers to spend the money and increase their profits.
Some borrowers agree to pay rate of interest because they want to gain maximum benefits avoiding tax. Mortgage interest is one of the examples of this that is tax deductible. Throughout the evaluation process of income tax, the mortgage interest is been deducted. On the other hand, banks are ready to pay interest rates to their depositors because those deposits allow them to lend money at a very high rate of interest which gets them higher profits in return.
In addition, interest rates are said to be income to those people who wish to give up the use of their money. As revealed earlier, most of the banks offer interest rates to all their depositors, in the same way an individual can gain interest income if he or she purchases a US Saving Bond. Alternatively, if an individual thinks about it, then the rate of interest is a cost to the borrowers.
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