Interest: What is it and what types are there?

Start » Financial dictionary » Interest: What is it and what types are there?

Surely you have ever thought about requesting a loan or contracting a certain banking product. If so, then you have to know that for this it is necessary to be clear about what the type of interest, what percentage of it is going to be applied to you and how it will affect you.

So if you want to know everything about the different interest and how it is calculated... keep reading this post!

What is interest and how is it calculated?

He interest, better known as type of interest either he price of money, is the amount we pay to use an amount of money in a certain time. Its value is measured in percentage and is generally expressed in annual terms.

The interests they can vary greatly from one operation to another, depending on different factors that determine the risk of the operation. So, the higher the risk, the more type of interest the bank will apply.

For the person requesting the loan, the interest It does not matter at cost of capital, while for the lender, the type of interest is equivalent to operation performance.

The formula to calculate simple interest is:

I = C. Yo . you

Where:

  • Yo: Interest rate
  • C: loan amount
  • you:Payment deadline

The formula to calculate compound interest is:

Cf= C (1+i)no

Where:

  • CF: Sum of principal and interest to be paid
  • C: loan principal
  • Yo: Interest rate
  • n: Number of periods in which interest is compounded

interest rates

Whenever there is a loan there is a interest, both if a financial institution grants us a loan or if we ourselves are the ones who deposit money in a checking account. So, when we put money into our bank account, we are "lend" money to the bank, and that bank, in return, will pay us money periodically.

Is he central bank European (ECB) of each country is the body that is in charge of regulating the interest rates looking at the law of supply and demand. In addition, it has a responsibility to maintain price stability to preserve the value of the euro.

Therefore, periodically, the European Central Bank is in charge of marking some reference interest rates which are the basis for all financial contracts, including mortgages or consumer loans.

The interest rate modalities are:

 

Fixed interest

does not vary throughout the term of the loan, regardless of the variations that occur in the market in the interest rate. That is, if the interest If it went up, we would not be harmed, but if it went down, we would not benefit either. 
 

variable interest

It is the one that does change; The percentage of the total capital varies throughout the life of the loan. Its amount is updated and reviewed within the terms established by the financial institution. With the variable interest we benefit from the drop in interest rates, but we are also affected.
mixed interest It is a mixture between the two previous ones, since during a period of time of the The duration of the loan will remain fixed and after this period it will become variable.
Simple interest It is the one in which interest is settled at the end of the year (or the agreed period).
Compound interest It is the one in which interest is added to the initial capital until the end of the agreement.
Nominal interest It happens when interest is settled in the period expressed in the interest rate.
effective interest is the one who computes the interest on a financial asset or liability taking into account all costs, amortizations, explicit interest and implicit or stepped interest.

Conclusion

He type of interest is he cost of a loan and the return on savings. That is, if a person requests a loan from a bank, the interest is what they pay for that loan. On the other hand, if you deposit your savings in the bank, it is the return that that money generates.

So if you need to know what percentage is the most appropriate that you must pay the bank in exchange for lending you money or, on the contrary, for the bank to deposit money for lending yours, come to Alter Finance and discover our solutions services financial advice. We will wait for you!

1 thought on “Interés: ¿Qué es y que tipos existen?”

Leave a Comment

English (UK)