Interest rates are different for different kinds of loans. Different kinds of loans have a higher or lower rate based upon different factors. I am going to talk about four different kinds of loans. Home loans, car loans, student loans, and credit loans (credit cards).
The loans for all interest rates are affected by a few things. The first of these things is your credit score. Your credit score is determined based upon your past interactions with borrowing money, as well as other things, like your employment history. If the company loaning you money doesn’t think you will be able to pay them back, then you will have a higher interest rate because the risk is higher for the company loaning you money. It is also affected by how long the loan will last, and they also have to account for inflation. They don’t want to lose money by letting you borrow it because of inflation.
Home loans are probably the longest loans on this list, as in, it takes the longest for you to pay back the money. This is because it is the largest purchase. Right now, rates range anywhere from 8.265% (according to google.com). Because this loan lasts the longest, there is a higher chance you won’t be able to pay it off, because there is a longer period of time for something to occur (losing your job, dying, etc.). They also have to adjust more for inflation because inflation grows over time.
Car loans are a lot like home loans, but they generally don’t last as long. Hence there is a lower risk of inflation and a lower risk of catastrophic events. Right now, rates are between 5.07% and 14.18% (according to nerdwallet.com).
Student loans seem to have a similar term time to car loans, meaning that they will probably last about the same amount of time. According to bankrate.com, the rate for a federal student loan (a student loan provided by the government) is 5.5%, but if you don’t get a federal loan, the loan rates can be higher.
A credit loan is the type of loan that a credit card pulls from. They generally have a fixed rate, meaning that the rate doesn’t change with the market. These kinds of loans are for your small purchases. Credit loans have an average rate of about 20-30%, as there is a lot more risk involved because the purchases are always different.
Loans have different rates base upon what item you are purchasing, how much you are borrowing, and also your credit score and inflation. Every single loan one applies for will have a different rate, and you have to come to terms with that. You also have to make sure you pick a reliable lender to borrow from.