When you need a loan, finding a team of knowledgeable lending professionals should be your first step. Of course, once you find a bank or lender you’d like to work with, you should always check the interest rate before agreeing to the loan’s terms. Since a loan’s interest rate will determine how much money you will pay in addition to the initial loan amount, it’s critical you know how interest rates work and how you can receive a lower rate.
BayCoast Bank offers exceptional service and solutions for loan customers. Learn more about how loan interest rates work, so you stay informed before signing on the dotted line.
What Are Interest Rates?
If you’ve ever searched for a loan, you know there’s usually a big difference in the interests rates offered. As you look for a loan with a good interest rate for your needs, you’ll likely want to know about the main factors that affect interest rates on loans. Learn more about these factors, below:
- Location: A borrower and lender’s location can determine the interest rates of some loans. For instance, since states and municipal governments have different regulations, taxes, property laws, and grants, a lender’s location can impact the interest rate tied to a mortgage loan.
- Type of loan: Banks offer several different types of loans, such as personal, auto, mortgage, and business loans. Since each of these loans comes with different risks, they’ll often have different interest rates.
- Loan term: At times, the length of your loan’s terms will determine your interest rate. Since shorter-term loans typically hold less risk, they tend to have lower interest rates. In contrast, longer-term loans usually have higher rates.
- Credit score: Before a bank or lender gives you a loan, they’ll check your credit score. A credit score generally predicts how likely a borrower will be to pay back the loan on time. This means a higher credit score will help you receive a lower interest rate, because you are a lower risk borrower, while a lower credit score typically means you are a higher risk borrower, which will often result in your paying a higher interest rate.
- Down payment: If a loan allows you to make a down payment, a larger payment often results in a lower interest rate. That’s because a down payment is an up-front lump payment on the loan, typically paid in cash, and results in you financing a lower amount for your purchase.
- Payment history: When you have a strong track record of making payments on time, you’ll typically receive lower interest rates on bank loans. This history tells banks and lenders that you’re a reliable, low-risk borrower and increases the chances of you getting new loans or credit cards in the future. On the other hand, if you miss payments, it’s harder to get a loan because lenders consider you a riskier investment and are less likely to lend you money.
- Type of interest rate: There are two main types of interest rates: variable and fixed. Fixed rate loans are a popular option because the rate doesn’t change throughout the life of the loan so the loan payments typically stay consistent and make budgeting easy. The con is that the initial interest rate may be higher than a variable rate option. By contrast, a variable rate loan may have a lower interest rate initially, but that rate could go up or down throughout the loan’s term. Variable loan rates may change often depending on the rate environment and could be hard to predict and budget for. But if you’re planning to pay off your loan quickly, taking advantage of the lower initial interest rate may save you money over the life of the loan.
Choose BayCoast for Your Next Loan
At BayCoast, we’re proud to offer competitive interest rates and various types of loans to our clients in Massachusetts and Rhode Island. Some of our most popular personal lending products include our mortgage loans, home improvement loans, energy efficiency loans, HEAT loans, and auto loans.
At BayCoast, we want to help you achieve your goals with the best loan product to suit your needs. You can review our loan offerings or check out our current interest rates on bank loans today.
If you have any questions, please feel free to contact us today!
