What Is A Good Loan Interest Rate?

 

For borrowers, the interest rate is one of the vital deciding factors whether to apply for a loan and agree to all its payment terms. Today, most applicants choose the type of loan that best fits their needs and as much as possible, the one with the lowest loan interest rate too. But what is really a good rate and how does it affect your whole loan repayment process?


Interest rate is the amount charged on top of the principal by a lender to a borrower for the use of assets. Most loans use simple interest, but other loan types use compound interest, which is applied to the principal loan amount and to the accumulated interest over time. If your loan is considered low risk by the financial institution, it will have a lower interest rate. On the other hand, a loan that is considered high risk by the lender will yield a higher interest rate.

As per trusted financial institutions in the Philippines, a loan interest rate that is below 5% is a great deal. When consumers pay less in interest, this gives them more money to spend, while also stimulating economic growth. Anything between 5% and 10% is also considered a good interest rate. Even though it's not the type of loan with the lowest interest rate, it significantly benefits both the borrower and the lender. Meanwhile, anything over 10% is likely to be considered high and risky.

Your interest rate significantly affects your whole loan repayment process. The lower your interests are, the easier and quicker it is for you to clear your loan. Therefore, choose the loan product with the lowest interest rate. More importantly, avoid bad lenders or loan sharks. Only loan from a reliable financial institution to prevent paying hidden and unnecessary fees.