Some people avoid them, others devour them from start to finish: the financial section of the newspaper. It can be valuable to follow developments in the money market for various reasons. For example for people who invest or borrow money. Some financial knowledge can prevent you from being faced with unpleasant surprises. For example, how is the interest on a loan determined?
Borrow money? Interest and market interest
The interest rate of a loan consists of a basic payment and a surcharge. The basic fee is the interest that a bank or lender pays for the money borrowed and is determined based on the market interest rate. The more demand for borrowing money, the higher the market interest rate. Do fewer people want to borrow money? Then the market interest rate falls. Subsequently, the interest rate that you pay for your loan with the market interest rate rises or falls.
Interest = basic allowance + storage
The storage part of the interest you pay for your loan is a combination of the following factors:
- Your loan amount: the more you borrow, the lower your interest.
- Debtor risk: the bank always takes into account the risk that the borrower will not repay the loan. The higher the risk, the higher the interest rate will be.
- The term of your loan: a loan with a long fixed-rate period is more expensive than a loan with a short fixed-rate term.
- Any collateral: as the owner of a owner-occupied home you can often borrow money at a lower interest rate.
- Costs: the costs incurred by a bank or lender are charged on in the interest rate. Think of marketing, personnel and office costs.
Money market interest and capital market interest
To make an estimate of the interest rate development of your loan, it is good to keep an eye on the money and capital market rates. The money market interest rate is the short-term interest rate with a term of less than two years. This interest is influenced by the rates at which a large number of European banks lend each other money. Loans with a fixed-rate period of more than two years often follow the capital market interest rate. The basis for this interest is the government loans.
Interest rate revolving credit
Certainly when you have a revolving credit or want to take out, you have to deal with the interest rate development. The interest rate of a revolving credit is variable and can therefore fluctuate. By keeping an eye on interest rate developments in the money market, you can make an indication of your future interest costs.
Borrow money with advice on interest
The credit advisors of the National Credit Checker can tell you more about interest, a revolving credit and associated interest rate developments. We like to think along with you! Request a quote immediately.