Low Interest Rate vs. High Interest Rate – Understanding the Difference

Financial rhetoric can be quite confusing at times, especially when you’re looking to borrow money for a large purchase. If you’re not sure what all the terms mean or you are given a long sheet with a lot of vocabulary that is unfamiliar to you, than it’s important to understand some simple ideas. The simplest thing that you can look into when dealing with currency matters is a comparison between low interest rate and high interest rate lending. This will help you make sound decisions in the process of purchasing anything of high value or cost.

The first thing to look at is the cost of the item that you’re going to try and finance through lending. The cost of it will determine a few different things in regards to payments. You will often find that anything that is four figures or higher will require you to pay in terms of monthly payments that are including interest that is compounded into each and every payment date. This rises and drops depending on credit history. The better your credit score the lower the monthly payments will be and in most cases the less you will have to give up front as a down payment.

·    Low Interest Rates – When it comes to this piece of rhetoric, you’ll have to understand that this will get added to the sticker price. You’ll often see promotions for new and used vehicles at a rate of around 1 – 2.9% as an enticing measurement for people to come into a dealership and purchase something new. These terms mean that you will have to pay that amount on the overall asking price as an additional fee. That makes the monthly payment rise and creates an inflated price than that of the sticker or manufacturers original pricing.

·    High Interest Rates – On the opposite end of the spectrum there are many lenders that do not want to risk giving out money to people that are having financial difficulties or have a history of delinquencies and much more. It is for that reason that many charge a high price to the original loan amount. You may be able to get the asking price of a large item, but you will end up paying a lot more in terms of compounded interest. Some higher options can be upwards of 30% if things are really bad. A down payment up front for a loan might also be asked of a person, which can be problematic for some.

The above two explanations are just simple views into the matter, there is far more to look into than just the rates at which the prices go up, which will require further reading. It’s important that you do not rush through the lending application process as it can easily be overlooked. The above is meant for you to have a little bit of an understanding when you walk into a place of business and try to get financing for a large purchase. Without understanding the terms, you could find yourself paying a lot more than you’d like for something that you may or may not need right away.

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