How does this logic from which the application of an interest rate loans? Find out why we have to pay to an institution more than the sum we paid.
The cost of money
To understand the logic of the "loan rate" we must also understand that when we turn to a bank or other financial institution to apply for a loan or a loan, even if it's money, we do not do anything but turn a person who works with lying logic of any merchant. The capital that we are asking for a cost like any other product on the market, so we have to pay charges in order to have an amount available.
What is the interest rate
Being a product that the bank or institution to offer credit to their customers seems clear that it is a cost that is applied to define itself through the interest rate. Wanting to give a more appropriate definition, we can specify how the loan rate, but also the rate applied to loans and mortgages, is for banks and lending institutions use to balance the reward of not investing in other assets of the same amount of money was instead given to the customer.
Of course, for customers, the same rate as loans become a burden, the cost incurred in order to obtain the liquidity they need.
Interest rate and amortization
The rate loan, therefore, takes the form of an additional percentage compared to the original capital that the customer has to repay over a specified period of time.
The repayment of capital borrowed in the form of mortgage, loan or loan is through the so-called amortization, which is predicting the number of instalments in which it is divided by the capital return and to which is added the rate of interest.
This means that the share of capital (divided into many rate as the number of months established by contract for the return) is also added an extra digit in which the interest rate is to be accorded to the bank or financial institution.
Interest rates and the contract is signed
It must be clear to all that the definition of interest rates on loans must always be clearly indicated during the signing of the contract and before receiving the credit. Then the customer has to claim to be informed about the amount of the interest rate that will pay.
The rate can never exceed a ceiling beyond which one reaches the so-called "wear rate (equal to the average rate charged by banks and institutions, increased by 50%).
The rate loans can be fixed or variable, depending on the type of reimbursement is established by contract: the fixed form provides the same percentage applied to all repayment instalments while the variant form provided, of course, a variation on the basis of ' changes in the cost of money (Euribor).
