The market and economy have seen some hard hits over the last few years, and individual and business finances have taken a hit because of it. Lately, though, it seems as if the risks and dangers are subsiding, and finances and the economy are starting to make a healthy comeback.
One area that has seen improvement is the banking industry in respect to loans and interest rates. Now, interest rates have been found at an all-time low, and many people are starting to make smarter financial decisions and use these interest rates to their advantage. Here are just a few reasons to take advantage of the continued low interest rates we’ve seen recently.
You will reduce the amount of personal debt.
When you take out a loan, your mortgage payments are typically divided into two parts: interest and principal. The principal portion of the balance is the amount of the item you’re specifically purchasing. The interest is the amount of interest you have paid on that item. For example, if you have a $200 monthly loan repayment, $150 of that may go toward your principal while $50 of it goes toward interest.
With a lower interest rate, you’ll end up spending much less on interest, and more of the money you pay back will go toward your principal. This will reduce the amount of personal debt you have, which is extremely beneficial to your credit score.
It will stimulate the economy.
Lower interest rates stimulate the economy because they attract more people. Some people may not be able to afford the higher interest rate, which means they forgo getting the loan and making the purchase altogether. However, a smaller interest rate can make monthly payments more attractive, thus stimulating the economy by getting more people to make more purchases. For example, let’s say a building management company has 20 condos for sale. With a higher interest rate, they may struggle to find buyers, but with a lower interest rate, they may end up filling the building more quickly. This reduces their debt and stimulates the economy by getting 20 homeowners paying taxes.
Lower interest rates mean not as many finance charges.
Higher interest rates usually mean more (and higher) finance charges. For example, the interest rate is based on the balance you have, and some companies also add on finance charges too, such as a fee for being late on the payment or a fee for making the payment online. With a lower interest rate, you can reduce the amount of finance charges you have. A lower interest rate will mean a lower payment, which can ensure you make your payments on time. Plus, you’ll be able to pay the loan amount off more quickly, which eliminates the added finance and service charge fees.
You can get more for your money.
When it comes to repaying a loan, most people determine the monthly payment they can afford to make, but the interest needs to be included. So, if you can afford making a $200 payment for one year, that doesn’t mean you can afford to buy something that is $2,400, unless you have a 0% interest. Instead, you’ll end up only being able to afford something that’s $1,500 or so, depending on the interest rate. The lower the interest rate, though, the more expensive item you can buy, as long as it stays within the $200 monthly payment. So if you did end up with a 0% interest rate, you could buy something that’s $2,400 instead of $1,500, and that’s a nice incentive.