How Are Interest Rates Made? 3 Factors That Increase Loan Interest Rates

low interest rates australia

Aside from your credit score, did you know lenders sometimes determine interest rate levels depending on the supply and demand of credit? Or that you might be able to get lower interest rates by applying for the same loan in another financing company? In fact, these could be some of the strongest factors that lenders would consider in charging an interest rate on your loan. Let’s discuss these factors that can increase loan interest rates…

Economic factors

Some of the most important basis of the banks in setting their interest rates includes some factors that can either push interest rates lower or higher depending on the lenders’ interest:

  • Gross Domestic Product-The growth of GDP or the monetary measure of Australia’s market value of the final goods and services produced within a specific quarter affects the interest rates of the loan. Australia’s GDP Annual Growth Rate increased by 3.4 per cent from 1960 to the last quarter of 2016. This means, the country’s economy is growing and so is the investment.
  • Inflation– or the continuous increase in the overall price level of goods and services in Australia’s economy over a period of time can result in a decrease in the value of Australian dollars overtime. Since inflation increases the value of consumer goods and services, it will also change interest rates on loans.
  • Interest rate volatility –Lenders watch the wild swings of interest rate closely and take measures to avoid loss of profits. While some borrowers may hold off from applying for financing and postpone important investments, there are those who settle for high-interest loans to address their current financial issues.

Income


Typically, more income results in a lower interest rate. Similarly, if you don’t meet the income requirements, you may find yourself on the higher end of the loan interest rate.

Borrowers with stable income plus a good credit score are most likely to pay back their loans. Some lenders may agree to waiving fees or lowering rates and could end up saving a good amount of money with high income.

Credit report


Another one of the factors which can increase loan interest rates is your credit report. Lenders typically adjust their interest rates when determining how much to give to a specific borrower depending on various factors. After they determine the eligibility of a borrower, they adjust the rates that would best match the borrower. So, if you have an excellent credit your borrowing capacity may increase significantly. When you have a good credit report, your borrowers would consider you as a responsible debtor that can handle more credit. You can also enjoy an attractive rate for your loans when you have a clean credit history.

While people with high credit scores have some bargaining power and lenders will be happy to offer you lower-than-average financing rates, the same thing is not true to those with poor credit rating. Most of the time, only those applicants that lenders believe would be paying back the loan on time enjoy this treatment.

Interest rates are made by creditors based on their own criteria. If you have bad credit and you need cash fast, Australian Lending Centre can provide you with easy-to-pay, low-interest loan solutions.

Contact the Australian Lending Centre today!

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on pinterest
Pinterest