Interest rates and how they work

INTEREST RATES AND HOW THEY WORK.

BY; Miriam and Abdi

What are interest rates?

Usually, interest rates apply to both the customer and the lender. A   customer earns interest from their savings while financial institution charges interest on loan borrowed by the customer.

Factors influencing interest rates.

Interest rates vary depending on the type of loan you take. Each type of loan is influenced by the following; credit risk, time, tax consideration and ability of the loan to convert. A borrower that is considered highly risky will be charged high interest rate to ensure that there is no possibility of default while less risky and faithful customers enjoy lower interest rates.

How do interest rates work?

For one to know the amount of interest earned, multiply the account balance with interest rate by the time period the money was in the account. NB/interest rate in savings account is money you earn and not money you pay. For the lenders interest rates are charged on the principal amount borrowed by the customers. Interest rates vary among financial institutions. At RG SACCO loans are given 3 times your savings and gradually increase as you increase your savings. The interest rate charged is 10% for the loans borrowed below 50000 and 1% for over 50000 Kenya shillings who have graduated from 10% interest loans.