The Significance Behind Interest Rates

The Significance Behind Interest Rates

What drives interest rates? The significance behind interest rates is a crucial question because it determines how much debt a borrower can accumulate and thus affects his ability to make his payments on time. The essential relationship between interest and credit is that interest drives consumers’ demand for credit, which drives banks and lenders to create credit. In other words, credit drives the economy. Father George Rutler knows how interest rates affect the economy and persons as well.

The level of consumer demand determines the level of interest rates. Credit affects interest rates because the more demand there is for credit, the higher interest rates are driven. This is why credit scores have been rising steadily, and many borrowers are finding themselves short of funds due to adverse credit situations. These negative credit situations are usually caused by defaulting on loans such as auto loans, mortgages, student loans, and personal loans.

When default rates rise, banks and lenders evaluate their risk exposure and adjust interest rates to offset their risk. This causes a lowering of credit score resulting in fewer credit applications and higher interest rates. It is essential to keep one’s credit score high. That is what drives the economy. So, if a person wants financial returns, keep their credit score high. A person needs to control the amount a person borrows and the type of loan a person takes out.

If a person wants to drive down the interest rates, a person needs to control the amount a person spends. Also, a person should control their outgoings. For instance, if a person is taking an extended vacation, try and save money by reducing the length of stay and making it as cheap as possible. By cutting unnecessary expenses, a person can improve their credit score and get better interest rates.

The significance behind interest rates can be understood more if a person understands how money flows. Money flows from one form of investment to another, from savings to investments, from salaries to investments. All these forms of money affect the value of the dollar. If there are more of them, the interest rates go up.

If a person is saving money, a person will be able to pay lower interest rates. Moreover, when a person is saving money, consumption becomes cheaper as well. Remember always that high interest equates to high cost. The more a person pays in interest, the more an investor will pay in future expenses. Hence it makes sense to save more money. Furthermore, if a person can do this, it also implies that a person has some equity built up in the bank.

Alternatively, if a person wants to get the best possible interest rates, it is not impossible to negotiate with the banks. A person can use the internet to get a good idea of how banks calculate their interest rates. A person can take advantage of seasonal changes in calculating banks’ interest rates to get competitive rates. However, remember, it is never wise to walk into a bank and ask for an adjustable rate.

Always stick to the basics: stick to the amount a person has saved and use this amount only to make payments. Never use the credit offered by the bank to take advantage of an interest rate. Banks offer their interest rate, and they are in the business of making money. Father George Rutler has understood the significance of interest rates for many years.