Article Side

Online Article Directory!

Hello Guest! Login or Register to submit articles!

Interest Rates – Different Forms

By Tyler Subscribe to RSS | February 7th 2012 | Views:
loading
 
  



An interest rate is the amount that is paid on money borrowed for the use of money from a lender. Interest rate is usually calculated on yearly basis. Interest rates can be of two types. They can be either variable or fixed.

Variable interest rate, also known as floating interest rate, varies according to the changes in the market. It is the adjustable rate which applies to loan, mortgage or credit. Variable interest rates typically cost less than fixed rate loans, but there is always a risk that interest rates may be hiked in future. Fixed interest rate is a pre-determined amount which remains the same throughout the period of the loan. As it does not fluctuate, borrowers can make accurate calculations of their future payments. Over the entire period, interest is paid in equal monthly installments and is not affected by any changes in the market.

Interest rates are of three forms which include prime interest rate, nominal interest rate and discount rate. Prime interest rate or prime lending rate is the lowest rate that is offered by the bank only to specific customers. Interest rates charged by the banks are largely dependent on the default risk of the customers. The customers with high credibility are most favored by the banks. The possibility of default for such customers is very low and so, the bank prefers to offer best interest rates to these customers. Usually, the banks best customers are large business enterprises and corporations.

Prime interest rate is mostly determined by the federal funds rate, a rate at which a bank lends to another bank overnight. Unlike other interest rates, prime interest rate does not change regularly. It is changed only when banks decide on it all together. Prime rate is considered as a measure of nation's economic growth. Prime interest rate is also considered important for retailers as it affects the interest rates of small businesses and personal loans.

Nominal interest rate is a pre-determined interest rate which does not take inflation into account. It is mostly less than the effective interest rate and is considered unreliable. Real interest rate is calculated by subtracting inflation from nominal interest rate. Effective interest, also known as yield, is the interest which adds annual compound interest to nominal interest rate. The main use of effective interest rate is that it makes comparison of loans easy. As each loan has its own compounding term, comparison becomes easy when it is converted to its equivalent annual interest rate. Effective interest rate differs from annual percentages. Effective interest rate can be different depending on different situations.

Discount rate is the rate which the Federal Reserve charges to the banks that borrow loans from it and also computes the present value for future cash flows. This form of borrowing is usually restricted and is pursued in case when the other means did not work out. The discount rate set by the Federal Reserve is presented to the board for its approval. Hence discount rates will differ for different banks.

Tyler - About Author:
If you are looking for interest rates then you would also like to know about interest rates banks, visit the link for more information.

Share on Facebook Tweet It Stumbleupon this post This post is delicious !

Article Source:
http://www.articleside.com/loans-articles/interest-rates-different-forms.htm

Related Loans Articles Subscribe to RSS

6 month loan- Monetary support with easy repayment
Published by Aldis Roy on January 11th 2012 | Loans
By getting fund via 6 month loan, you can maintain your lifestyle and utilize money for daily needs....
 
Cash now-Perfect loan service for you!
Published by Luck Wright on December 12th 2011 | Loans
For getting instant cash now, you must be a citizen of US and above 18 years of age....
 
Ez pay loan- Obtain quick money as per your personal needs
Published by Freedy Cort on June 25th 2012 | Loans
If you are taking ez pay loan, you can easily grab quick funds of up to $1500. The amount is so usef...
 
Ten dollar payday loan- Easy to get approval and quick cash
Published by Addison Maddy on July 2nd 2012 | Loans
If you are taking small funds from ten dollar payday loan, you have the chance to meet small financi...
 
Ez cash loan- Challenge any fiscal worries today!
Published by Ricky Loyel on June 25th 2012 | Loans
Once you have derived cash from ez cash loan, you can overcome cash crisis without any hassle....
 
Instant loan today- Quick loan available with reasonable interest rates
Published by Aldenn James on July 4th 2012 | Loans
If you are getting quick money via instant loan today, you have the right option to meet cash crunch...
 
HDFC home loan
Published by Dialabank on April 3rd 2012 | Loans
Now a days’ getting home loan is quite an easy task. HDFC Home Loan can be home equity loan or mor...
 
Fast loan no credit check- Meet financial urgency now!
Published by Andrew Stomes on June 25th 2012 | Loans
By taking fast loan no credit check scheme, you can now easily fulfill financial emergencies without...
 
No direct deposit payday loan-Solve financial problems with ease
Published by Abell Bush on March 29th 2012 | Loans
With the assistance of no direct deposit payday loan, you can obtain funds up to $1500 to surmount f...
 
Personal Loan Company: Accomplish their personal requirement on rate interest loan
Published by Steve Matthew on February 3rd 2012 | Loans
Personal loans company are the most excellent resources of fulfilling the individual wants and one c...
 
No faxing payday loan: Money Approved with Easy Features
Published by Albann James on May 9th 2012 | Loans
No faxing payday loan is the monetary assistance that is approved without collateral and no credit v...
 
Qualify for a restaurant loan with Visa/Mastercard
Published by Mathias Scott on May 14th 2012 | Loans
The restaurant business is a tough one considering the kind of competition one has. Being able to ra...
 
Same day loans- Quickest loan available in the financial market!
Published by Dalton Erwin on March 28th 2012 | Loans
If you are Australian and want to avail instant money, you can now apply for same day loans to get q...
 
1000 loan no credit check- Grab small funds within few hours
Published by Adam Felix on June 23rd 2012 | Loans
If you have fiscal crunch, you don’t need to waste time and avail 1000 loan no credit check in ord...
 
Small loans with bad credit- Useful loan for bad credit scorers
Published by Astor Roy on May 21st 2012 | Loans
By acquiring good sum of funds via Small loans with bad credit, you can overcome instant needs of fu...
 
Apply online for bad credit installment loan- Offers quick funds for everyone!
Published by Bailey Molton on June 9th 2012 | Loans
If you are availing bad credit installment loan, you get quick funds up to $1500. This small fund is...
 
Need quick Loans- Desire to have a loan of cash currently
Published by Steve Matthew on March 19th 2012 | Loans
Need quick loan have a loan to help for unsecured loan and reassured form the burden of arranging an...
 
500 loan - Meet unfavourable financial problems now!
Published by Rocky Ales on June 4th 2012 | Loans
If you are taking instant funds via 500 loans, it is possible for you to overcome unexpected fiscal ...
 
Mobile loan- Very convenient to grab quick funds
Published by Alesia Ace on January 19th 2012 | Loans
With the aid of mobile loan, it is quite easy for you to gain quick funds up to $1500 in order to ov...
 
6 month loan: Lucrative Financial Option
Published by Daren Rely on June 23rd 2012 | Loans
6 month loan is the best fiscal aid for people in cash shortage by every now and then as they can qu...