Have you EVER asked yourself how interest rate will affect that loan you are about to take? Interest rate affects everything related to loans. It is what will make a loan cheap or expensive. One of the most neglected money saving tips is to understand the loan you are about to take which include the interest rate. The basic rules that you must know are :-
How much are you planning to borrow?
The more money you borrow, the longer it will take to repay. The longer it takes to repay a loan the higher interest rate you pay. As long as it is not an emergency, you should start by saving a percentage of what you are planning to invest in. Let the loan be the top-up and not the whole capital you need.
How long will it take to repay the loan?
Shorter loans always attract lower interest rates. Lenders tend to see less risk when you commit to pay on short-term. You will pay higher monthly payments of course, but it is worthy if you can afford it as it will save you higher interest.
What interest rate will be charged?
Interest rate is what determines if the loan will be expensive or not. It is never constant but keeps fluctuating depending on the economy status. Currently most lending institutions in New Zealand offer the following interest rate for personal loans:-
- 18.95% p.a for a loan less than $10,000.
- 17.95% p. for loan over $10,000.
These rates are bound to change. That is why it is good to know the status of the economy. You don’t need to be an expert at all. Just know enough to understand if the economy is struggling or growing. A struggling economy tend to increase the interest rate as the government will borrow more from the local financial institutions which interest rate to be adjusted upwards. This will definitely make your loan expensive.