Loan interest is a payment for a loan

When a person does not have enough money for a major acquisition, treatment, training, he is looking for an opportunity to borrow this money. In order for the creditor to have the desire to give this or that amount for temporary use, in addition to the confidence in the solvency of his clients, he needs some compensation.

The basic concept

Loan interest - this is the payment that the owner of the funds charges for using them. This economic category appears in commodity production on the basis of emerging credit relations. The size of interest is the point of equilibrium that arises between supply and demand. The movement of borrowed funds is from the person (or organization) that issued the loan to the borrower. Payment of interest is in the other direction. Thus the cycle of value is completed.

Method of calculation

So, loan interest is the point of equilibrium between the supply of funds and the demand for them. Its rate is calculated using the following formula:

Stavka = GD / S * 100%, where Stavka is the interest rate, GD is the annual income of the holder of the funds (the lender), S is the amount of the capital that is loaned out.

Loan interest is what the borrower pays attention to first of all when registering a loan. There are real and nominal rates. The first of them takes into account the change in inflation. The second is not, because it reflects the ratio that exists between the amount returned by the borrower and the amount of the loan received. This is the money that is paid for the unit of the loan for some time. It is worth noting that the real rate is the basis for making decisions about investments.

What affects the amount of the bet?

Loan interest is a category (economic), depending on a number of factors:

- From different risks. This is a characteristic feature of the market. They are at the conclusion of agreements with suppliers, in the production of new products and so on. The creditor's risk is the risk of non-return of its funds. The higher it is, the greater the percentage.

- In addition, loan interest is a value that depends on the term of the loan. If it is small, then the creditor has less missed opportunities to use the money that he gave for temporary use. In this case, the percentage will be lower. With increasing time, its value increases. This is not only due to the large number of missed opportunities, but also because of the high risk of non-return of cash.

- The level of loan interest depends on securing the loan. Pledge is property or values given by the borrower for the crediting period. If he does not give up his debt, the lender can dispose of the mortgaged object. This reduces its risk by reducing the percentage.

- From the size of the loan. The interest rate is greater for a smaller loan. Administrative costs do not depend on the size of the loan. Therefore, with a smaller loan, the rate will be higher.

- From taxation of income (interest). Some loans are taxed. The size of their rates are included in the loan.

- From competition. With its growth rates are down, especially this is clearly seen with an increase in the number of banks.

It can be concluded that the rate of loan interest (rate) is a value that varies with time and depends on various factors.