Fixed interest rate. Or maybe better variable?On November 9, 2019 by admin
Everyone who has taken out a loan at least once in their life has noticed that depending on the product, each commitment involves several or even several different fees. You have to be able to compare and analyze them to choose the best offer for yourself.
We can divide these costs into those that the customer must always pay, and those that only appear in some of the cases provided for in the contract. However, there is one cost that we will always have to incur and the cost is interest. What does the interest rate consist of? How is it calculated? What are its basic two types and how do they differ from each other.
Where do banks get money from?
We often borrow money, but we don’t often think about where banks have money to borrow from us. Is it so that the bank has a huge treasury from which it only chooses money? It may have a treasury, although nowadays it is rather virtual money. In addition, the money had to come from somewhere in the vault. In fact, banks have several options for getting in from the market.
The first of these is borrowing funds from the National Bank of Poland. The bank lends from the NBP at the amount of reference rate determined at the meeting of the Monetary Policy Council.
The reference rate, like the other interest rates, is determined by the Council on the basis of macroeconomic data in the economy of our country. Currently, interest rate policy is very stable, which is why it has remained unchanged for over 3 years. The reference rate is 1.5%. The second option is to borrow money from another bank.
When the bank goes to zero
Since the bank has costs of raising capital, it means that to get out of the transaction of lending money to someone at ‘zero’, it must at least offset this cost. So if we see somewhere the offer “0% loan” for the bank, it means no less that it must contribute to the business.
Such offers, however, do not happen often, and if they are aimed at acquiring new transactional customers. The bank has in its status written that it is supposed to earn, and this means that it not only has to offset the cost of raising capital, but also to earn money from trading in money.
What is the interest rate?
Therefore, the interest rate on our loan will consist of two elements. The first of these is WIBOR, which is treated as the cost of raising money for the bank on the interbank market.
The second component is the bank’s margin, which is the direct earnings that the bank earns on a given transaction. The interest rate on the loan or credit will always be expressed on an annual basis.
However, the question arises – since the interest rate is expressed on an annual basis, and I often take out a loan for a longer period, can the bank change the interest rate? The answer is – it all depends whether I have a loan based on fixed or variable interest.
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