Types of interest applied to loans

There are many situations where both individuals and legal entities may have budget holes caused by the lack or urgency of money in order to be able to go well beyond certain unseen situations.

Need a credit?

Need a credit?

However, fortunately, any financial shortage can easily be covered by asking for credit, especially because there is now a wide variety of credit offers that you can call at any time. If, however, you have already made the decision and you are about to make a loan to a bank or any other financial institution, you should first know some very important details about the interest.

Interest is the amount of money required by the financial institution to be paid by the client in order to qualify for the funding he or she needs. Thus, there may be two types of interest: simple or compound.

Simple interest refers to the amount of money to be repaid by the requester in a maximum period of one year. Compound interest is that amount of money that can be repaid after a period longer than one year and added to the amount of money borrowed annually, and consequently the following year will be taken into account the original amount as which is added to the interest rate of the previous year.

In order to take into account the real interest rate that is imposed with the possibility of financing, you should pay particular attention to the rates.

So, the fixed interest rate estimates the percentage interest rate and monthly rate that will remain the same throughout your credit, and you can get a clear estimate of the credit costs you will get.

Variable interest rate

Variable interest rate

The variable interest rate is the monthly rate that is calculated based on a certain reference interest plus a certain amount of money in the contract between the two parties at the time of the credit. This type of interest is noted by the fact that when market interest rates change, it changes with each other, but the factors that can lead to interest rate changes can be easily identified.

Depending on the changes that may occur at certain times in the Romanian financial market, the revised interest rate may also change and this changes according to a number of factors such as the NBR policy, the evolution of refinancing costs, interest rates on the entire market, but banks are not obliged to impose these changes. However, if necessary, the bank has the obligation to notify the client of the new interest rate, although sometimes the changes may be visible through the notice boards located in banks’ offices.

There may also be a mixed option of these types of interest rates, especially when the rate is fixed for the first years after the start of the loan, after which it becomes variable. This is more and more common with real estate or mortgage loans. It is important to know all the details about it, because most of the time customers are making decisions on the basis of the interest initially communicated, not knowing that the amount will change over the next few years until the end of the contractual period.