Interest rate is the amount of interest on a capital investment or a loan.
Although the interest level can be fixed, it is not the same at all times, but is always subject to certain fluctuations. There are various reasons for this.
Factors influencing the interest level
A very important factor is the general economic situation. If it is relatively good, the general interest level will be rather high, in the opposite case rather low.
Ultimately, however, the level of interest rates depends on the monetary policy measures of the European Central Bank and the national central banks.
If interest rates are very high, it is possible to make significantly more profit with various investments, such as call money or time deposit accounts, than in times when interest rates tend to be low.
Nominal and effective interest rate for loans
In contrast to the nominal interest rate, which only shows the pure cost of the loan, the effective interest rate also includes the processing and account management fees that the bank additionally charges to its customers.
If you want to know exactly how much you will have to pay back to your bank, you should only look at the effective interest rate and not the nominal interest rate.
Even a loan comparison on the Internet or at the individual local banks is based solely on the comparison of the annual percentage rate of charge. This also applies to the use of a loan calculator.
Term and loan amount
If the loan taken out is a creditworthiness-independent loan, the interest rate level is only influenced by the general economic situation, the length of the term and the amount of the loan taken out.
Personal factors, such as creditworthiness, have no influence on the level of interest rates. The situation is quite different for a creditworthiness-dependent loan.
In this case, the interest rate depends crucially on whether the customer has an excellent, very good, good, average or just sufficient credit rating.
The interest level will be higher, the worse the creditworthiness of the customer is judged and the lower, the better his creditworthiness is judged.
Interest rate level for construction and mortgage loans
For future builders, the interest rate level plays a very decisive role. Even minor changes here can have a very large impact on the total amount and the amount of the monthly loan installment.
It can be quite common to lock in the current interest rate level for future periods as well.
This approach is particularly worthwhile when the current interest rate level is very low. If you need follow-up financing, you can also take out a forward loan for this purpose.
Interest rate level for capital investments
The level of the current and general interest rate can have a significant influence on the question of which money or capital investment ultimately proves to be lucrative and which is more likely not to be.
For this reason, it is always advisable to compare interest rates before making an investment decision, paying particular attention to whether and to what extent the interest rate is fixed for the short or long term.