The world of finances and economics have a lot of terminology that can be difficult for the everyday person to keep track of. Given how much ground is covered in these fields, it is totally understandable, but that does not make it any less frustrating for someone just getting started and attempting to navigate this world. I think that having resources around that can offer some guidance on this is really important, hence why I want to join in on that discussion.
Today, the topic at hand is something called a variable loan rate. As you can probably guess, there is a fair amount to unpack here. While we can check out sites like this one, https://www.investopedia.com/articles/investing/061313/10-common-financial-terms-every-newbie-needs-know.asp, to get a basic rundown on several different terms, what I am offering today is a bit different from that. With that all in mind, let us get started!
Part One: Loans – What they are and Why it Matters
Let us break down each part of “variable loan rate,” starting with the word that most people already have some familiarity with. Of course, that being “loan.” Put simply, a loan is any sum of money that a person borrows from a credit union, bank, or online provider that is then expected to be paid back in full (plus interest).
Honestly, it is difficult to go through the world as we know it right now without taking out a loan of one sort or another. Unless you can drop tens of thousands of dollars in cash for a car or a house, you probably have a few debts yourself. Part of existing in the world right now is juggling debts and repayment plans.
While there are some obvious reasons that people end up borrowing money from lenders, there are others that are a bit more obscure. Mortgages, auto loans, and student loans are fairly omnipresent in our vernacular at this point because of how commonplace they are. What about private or personal ones, though, and why should we care?
What sets them apart from the other types is simple and can be boiled down to a few easy points. The first is that they offer a lot more flexibility in regard to what you can use the funds on once you receive them, as opposed to the money having a very set purpose that cannot be strayed from.
They also typically have different lenders or providers than the more traditional styles of borrowing. For instance, you can click here to got to billigeforbrukslån.no/uten-kredittsjekk to see an example from another country. Many borrowers seem to forget that international lending and borrowing is a thing, so that is why I mention it here.
Something to take note of is that there are a fair number of scams that exist in the world. You see, if you see advertisements for loans that do not require a credit check, there is a good chance that the lender is looking to take advantage of you. Most reputable loans do require you to have a credit check.
Why is that you might be wondering? Well, credit is what allows a bank or financial institution to determine if you are a trustworthy borrower. If you do not meet their standards, you will likely not be approved for that loan.
If they are not asking for your credit at all, though, it is likely that they only care about making a quick dollar. For that reason, it is generally a good idea to ask why there is not one or simply steer clear of these offers. There are probably more trustworthy lenders out there.
Part Two: Interest (Loan) Rates
Shifting focus slightly, let us delve into the next part of this phrase. Interest rates are something that we tend to hear about a lot since they play such a huge role in capitalistic societies, but it remains worth discussing on a deeper level. Few of us really take the time to learn about it beyond what we cover in our algebra classes in high school.
So – what is an interest rate, then? When a lender offers a borrower a loan, they will add an additional charge to it that will slowly accumulate over time. It is based on a percentage of the principal (the initial amount borrowed). Generally speaking, this information should be any contract that you could sign to agree to the terms of the deal.
Methods of calculating it can take a few different forms, but more often than not, it is based on annual numbers. This is often referred to as “APR,” or annual percentage rate. Why does this exist, then?
Where things get complicated is when lenders start to charge excessive interest rates that are essentially gauging the wallets of their customers. Often, those loans that claim they do not require a credit check will fall into this category.
Part Three: Variable Rate…?
This is probably the most important distinguishing feature of the phrase, so I left it for last. Websites such as this one can offer some additional perspectives if you find yourself still wanting more after I conclude today. Beyond that, what does this mean?
With most loans and even credit cards, we tend to think of the interest rate as something that does not fluctuate. Instead, it stays the same, never increasing or decreasing. However, if you have a variable rate, this is not the case.
Perhaps you are wondering how this works, and what would even determine a change in this figure? Well, most lenders tend to base it from some national and global data and financial figures. Essentially, they shift with changing trends that we see impacting most of the economy. Really, it is not surprising that variable interest rates have become more popular due to this.
The “prime rate” is often what they consider when making adjustments, though other things certainly play a part in it as well. Now, this can work in our favor at times, but often it tends not to. As prices increase for all goods, it follows that loans will get more expensive as well.
So – is it a bad thing?
Some experts and analysts would argue that a variable loan rate is probably not something that you want to look at. However, I would argue that as they become a lot more commonplace and present, it may be something that we need to get used to. At the very least, we should know what they are and what to expect from them – and remember, credit checks should be a part of that.
