What's in a rate?
What’s your interest rate at? What makes a company offer the percentage it does? Why do you see different companies have different rates for what look like similar offers? These are common questions for everyone when they’re weighing up their options, or comparing what they have at the moment with what else is out there. TWiCE has decided to have a look at what goes into the interest rate or APR that you’re paying.
Well there are a couple of things that contribute to the rate you’re paying:-
National inflation rate, the price range at which the country is able to buy things and so on. If things are more expensive nationwide then that will flow on to the interest you pay for the card or loan you might have; something that’s out of most people’s control.
The element of risk that comes with lending and borrowing money. There’s a chance that someone might not be able to pay back the money they’ve borrowed, and then the lender/investor ends up losing money. The interest then contributes to giving the borrower some money back before the whole loan is paid back.
The thing is though, often, you will see the high-street banks charging “rip off rates” when it comes to the rate you're paying. Particularly with the big ‘high-street’ banks, a big part of why you’re paying the rate you’re paying is the high administration fees they often charge. On top of that you’ve got the profit margins and money that the bank wants to make from you. This has even resulted in some lending habits that our Financial Conduct Authority has had to investigate and address. This isn’t just an issue for Britons.
The main thing to take away from all this is that researching more about what goes into the rate your paying can only do you good. With a little more information in hand you can then look at options like comparing rates, whether they’re big banks or other kinds of credit firms. There are always other possibilities out there for you; it’s just a case of figuring out what would be the right choice for you. A big part of that is not just reading up online about rates, but having a chat with those around you, and get as much information from as many different. TWiCE is here to help educate the community so that they’re able to make their own decisions for themselves, in their own best interests. We’re trying to get people involved and help them gain their financial freedom through educational courses and community involvement. If that’s something you’re interested in learning about or helping out with, you should check us out a little more.
- Tom L
Disclaimer: The above information does not replace financial advice. Please ensure you seek independent financial advice before making any decisions regarding your finances. We also recommend that you carry out your own research to ensure that this is right for your own unique circumstances. Please note that we sometimes link to other websites but we cannot be held responsible for their content.