So, before embarking on this adventure, it is essential to understand the various ins and outs of personal credit and in particular an element that will greatly influence the cost of your loan: the interest rate! Find out everything you need to know about the interest rate for your personal loan!
What is the interest rate in a personal loan?
You are looking for a personal credit to help you finance one or other of your projects? So you probably couldn’t miss the notion of interest rate.
The interest rate of a loanit is this percentage that indicates the amount you will have to repay to the bank for the borrowed capital.
You wish to borrow money from a financial institution, you will then be obliged to pay this amount.
For the bank, lending money is always source of uncertainty. Indeed, a Personal loan can be spread over many years and it can be extremely difficult to foresee the various contingencies that can occur in a lifetime.
It is in order to avoid foreseeable risks as much as possible that banks are constantly looking for guaranteesof the evidence that the potential borrower is indeed a trusted person who will be able to repay its debt month after month, year after year.
However, the risk 0 in credit does not exist. The establishment of a interest rate thus allows to counterbalance the risk what does the personal loan represent for the financial institution.
The bank must have the resources and the necessary assets to lend money. These resources, it will in particular seek them out by borrowing from the European Central Bank or from the savings of its customers. An exchange that is also based on a certain interest rate!
So the interest rate is a essential factor in the proper functioning of banks.
This rate can vary in terms of several factors.
What criteria will influence the interest rate of a personal loan?
Thus any personal loan, whatever it is, is accompanied by a certain interest rate which can vary according to several parameters!
The interest rate – also called borrowing rate or nominal rate – will therefore vary according to:
● The chosen personal loanthe rate of a car loan is thus different from the interest rate of a works loan, for example.
● Depending on your financial situationthe higher the risk of non-repayment, the higher the rate is likely to be.
● The financial institution chosen.
● The duration personal loan.
How important is the interest rate for your personal credit?
You will therefore have understood that the interest rate is a essential link in the proper functioning of a bank, but will also have a considerable impact on your personal credit.
Enter here nature of your rate, the duration of your credit agreement or the type of loan personal, find the best interest rate depending on your needs, your situation can sometimes be tricky. Entrust your project to a credit broker specializing in personal credits could then be the solution!
The objective of a broker is indeed to spy on the credit market in order to be able to negotiate the rates of the various banks as much as possible.
TAEG, what is it?
Before getting to the heart of the matter and delving into the various possible choices for your interest rate, let’s go back for a moment to the meaning of TAEG.
The APR or annual percentage rate is a percentage that calculates the total cost of the loan for the borrower. It represents the amount to be repaid in addition to the amount borrowed.
Knowing the APR allows you to compare the different offers more easily present on the market for the same duration, the same amount and to find the one that best suits your profile.
What rate for what type of personal loan?
Your car dropped you and you wish to acquire a new one, you wish to help your child to finance the studies of his dreams, you want to realize some works in your home for your convenience or to save you money energy non negligable ?
Each dream, each project is different and for each of them, there is a loan and a rate that corresponds to them.
Indeed, whether you choose a work credita energy credita car loana student loan or even a marriage credit to help you finance your project, you will certainly benefit from a different rate.
Be aware, for example, that the interest rate of a used car loan will be notably higher than a classic car loan or that the rate of a work loan will potentially be higher than an energy loan.
Several kinds of interest rates
Choosing between interest rates fixed, variable or semi–fixed, this is a generally essential step that can have a significant impact on the cost of your personal credit, but also on your daily life. However, you will see that this is not necessarily the case for all credits and in particular for personal credits in Belgium !
the variable interest rateas the name suggests, means that your rate will changevary during the repayment of your credit.
Several deadlines will be fixed during which the rate will change depending on the rate in place at that time.
The advantage of this solution is that in case of decrease interest rate, you can enjoy a more interesting rate and therefore more advantageous for your personal credit.
However, this method can also have its downside since the variable rate can also be in your disfavor in case of rise of the interest rate.
A solution risky therefore but which can potentially bear fruit in the event of a fall in the interest rate.
The fixed interest rate
the fixed rate is, meanwhile, the method that interests us the most for your personal credit.
Indeed, you should know that in Belgium you will only find fixed rate installment loans.
The fixed interest rate is aptly named because it means that you will keep the same rate during the entire repayment of your loan.
The major advantage of this solution is that you will avoid any unpleasant surprises.
Indeed, with fixed rate personal credit, you know the rate but also the monthly payments and the duration of your loan in advance.
It is certain that you will therefore not be able to take advantage of a potential drop rate for your credit, but it also means that you are not likely to suffer the rise of the market either.
How to calculate the interest of your personal loan?
Calculate interest which you will have to pay by taking out a personal loan depends on several factors.
the rate may differ depending on the type of creditthe amount borrowed or even the duration of your credit. Factors that will greatly influence the cost of your loan.
Calculating the interest on your personal credit is not necessarily child’s play. On the other hand, using the credit simulator to get a first idea of what your loan will cost you!
You just need to indicate the type of loanthe amount as well as duration of the desired loan and you will obtain in a few moments the amount of your monthly payments, the APR applied or the total cost of your credit.
A much appreciated boost before actually embarking on this adventure of obtaining personal credit!
Your personal situation influences the interest rate
You should know that when you take out a personal loan, your financial situation goes clear to influence on your interest rate.
Thus, the more your situation will be unstable, upper will be the interest rate. Always for the same reason, the risk incurred by the bank.
Indeed, the more risk there is for the financial institution, the higher the interest rate will be.
It is therefore important to take these elements into consideration before embarking on this adventure.
You are in CDIyour income is stablethen the rate you will be given will certainly be more interesting than that of a person at unemployment Where independent.
Distinguish between nominal interest rate and real interest rate
the nominal rate is the rate that you will actually have to pay when you take out a loan or when the bank pays you out of your savings.
It is this rate that we will generally talk about, negotiate, agree and pay.
The real interest rate
the real interest ratemeanwhile, takes into account the rise in prices, inflation and therefore the products and services that borrowers and savers can afford with this money.
The real interest rate is therefore calculated by taking the difference between nominal rate and inflation.
The real interest rate thus makes it possible to know the real cost of your loan or what you actually receive thanks to your savings.
Let’s take the example of a person who deposits €2,000 in his account and who receives a nominal interest rate of 3%. The following year, the saver will then receive €2,060.
During this period, prices have increased by 4%, which means that this person will need €2,080 to pay for a product or service that would have been worth only €2,000 a year ago.
This therefore means that the return on your savings is negative, the real rate of your savings is therefore -1%.
Call on a credit broker to help you see things more clearly
The world of credit can be very complicated and find the best credit can be even more! So, partner with a credit specialist in this long adventure is not negligible!
You are looking for a advantageous personal loan and adapted to your situation? So do not hesitate to take advantage of the experience and in-depth knowledge of the credit broker!
He will be by your side through each step, he will advise you and guide you to the personal loan that best suits your situation!
Warning, borrowing money also costs money.
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The borrowing rate of a personal loan: decryption and analysis
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