What is an Interest Rate?
If you have been looking for a personal loan online, you have come across the term “interest rate.” The interest rate is the rate at which, usually expressed as a percentage per annum (per year), is the additional charge you must pay back a lender when you borrow a sum of money. Your interest rate is the way you “pay” for the loan. The interest is calculated on the sum you borrow, known as the principal. Your personal interest rate is calculated according to your ability to pay back your loans. This is determined in part by your credit score, employment status, residential history, and other measures of risk. Borrowers who have lower risk profiles generally pay lower interest rates.
Interest Rates vs. Comparison Rates
If you have already asked for your personalised interest rate or have seen the term “comparison rate” while looking for personal loans, a comparison rate is your interest rate plus any additional fees or charges associated with the loan. These may be account keeping fees, for example. This gives you the true cost of the loan, giving you an opportunity to directly compare other similar loans with comparison rates.
Fixed vs. Variable interest rates
NOW Finance only offers fixed interest rate personal loans. Even so, some lenders may offer a choice between fixed and variable interest rates. Fixed interest means an interest rate is “locked in” for the duration of the loan term, or for a set period. This means your repayments will be the same throughout the term. A variable interest rate means your rate might rise or fall in line with market rates. This means your repayments can also go up or down depending on how the market is faring.
Choosing a Personal Loan
When deciding on applying for a personal loan, you should factor in all the different aspects of a loan including comparison rates, fixed or variable rates, and loan terms. Longer loan terms means paying more interest over time, however it also means lower weekly or fortnightly repayments.
Please look at our kNOWledge base for more, or call a personal loan advisor who can answer your questions.
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