Are you going to take out a loan or have you always wondered what interest rates are for a size?
There are many different types of interest today, at least when you look at different loans. Here you will come across a lot of different definitions. These definitions will be explained one by one later in this article.
But first, the basics will be determined so you are 100% dressed to take out a loan or just get a greater knowledge of interest rates.
Welcome to the ultimate guide on interest rates.
What is an interest rate?
In this article, an interest rate is treated as the price of a loan by either private individuals or financial institutions.
It may sound a little complicated, but it really just means that what you pay to be allowed to borrow money from the bank, the mortgage institution or an online loan provider.
I want to state this because there is also something called “monetary policy interest rate” which is set by Danmarks Nationalbank and actually has quite a big impact on the interest rate you pay as a borrower in the bank. But to keep it at a fairly understandable level, you just need to know that Danmarks Nationalbank sets some different interest rates that affect the interest rates on bank loans and mortgages.
The interest rate is therefore the price you pay when you borrow money. The interest rate is almost always calculated as a percentage of the loan amount.
If you borrow USD 100,000 at an interest rate of 10% pa (per year), your interest costs will be USD 10,000 per year.
It seems very simple, doesn’t it?
The only complexity around interest rates is actually the many different types of interest rates. They all contain something different.
How is the interest rate determined?
This is seen from the lenders’ point of view, ie how e.g. the bank sets the interest rate you pay as a borrower.
And, like everything else in the financial sector, it is determined on the basis of a large number of variables, including primarily supply and demand. It also relies heavily on these aforementioned monetary policy rates, especially on short-term loans such as debt securities. bank loans.
In general, it really just means that the interest rate is governed by the customer’s willingness to pay and the general financial situation.
In order not to turn this article into a lesson in social economics, we quickly move on to the different types of interest rates.
What types of interest rates are there?
As mentioned earlier, there are many different types of interest or “interest terms” as they are also called.
Just to show an example of what it might look like when banks disclose interest rates on their types of financing, you can see an example from Good Finance’s car loan price list below:
There are different types of car loan vertically in the table and horizontally there are 3 different stated interest rates. It is not because you have to pay 3 different interest rates when you take out a car loan with Good Finance, but rather because all the different interest rates involve some different things.
The various interest rates will now be reviewed one by one and hopefully give a broader understanding of the individual interest rates.