interest rates

Sample banner

0 / 5. 0

interest rates

Category: Essay

Subcategory: Formal Science

Level: College

Pages: 1

Words: 275

Name
Professor
Course
Date
The interest rate is the amount expressed as a percentage of principle to a borrower from a lender for use of assets or money lent. Interest rates are calculated on an annual basis as the annual percentage rate (APR) (Homer, 2013). Therefore, as a result, banks pay interest on deposits by customers as a way of encouraging people to make deposits. Banks use these deposits from savings or checking accounts to finance loans. The bank charges borrowers with a higher interest than they pay depositors to realize a profit. However, competition among banks for depositors and borrowers results in banks having interest rates in a narrow range of each other (Sylla, 2015).
Interest is applied by the bank to the unpaid portion of a loan or credit card balance and adds up to the outstanding debt. One must pay interest for each month or else have an increase in the outstanding debt even when paying deposits (Swanson, 2014). Banks charge higher interest rates when the chances of the loan getting repaid are lower. This explains the higher interest rates charged on revolving loans like credit cards. Additionally, Borrowers with a low credit score or risky borrowers are also charged with higher interest rates (Bernanke, 2015).
Interest rates are a key determinant of economic growth. Higher interest rates lower the amount of credit available to people, hence slowing consumer demand. Consequently, higher rates encourage saving by increasing the savings rate (Jha…

Free interest rates Essay Sample, Download Now

Don’t waste time!

Order Original Essay on the Similar Topic

Get an original paper on the same topic

from $10 per-page