Majority of Americans have at least one commercial loan to their name. This is a reality in the economy and financial world that we live in today. This is why it is extremely important for everyone to have a grasp of the concept of commercial loan rates, so that they will not get lost in the terminologies and technicalities.
Essentially, loan rates or interest rates refer to a percentage that is charged or paid for the use of the money that was loaned. When the money is borrowed, it is charged. When the money is loaned, it is paid. The amount would depend on the actual percentage as well as the total amount of the money being borrowed or loaned.
It is not only financial institutions like banks and lending companies that can impose interest rates. Anyone who lends money can essentially levy loan rates on the amount being borrowed. For banks, the money that is being loaned out normally comes from the money of other depositors regardless whether it is savings or checking accounts. The interest paid by the bank to its depositors is a reflection of their right to use the money entrusted to them.
When borrowers fail to pay back the loans with interest, there will be a drain in the deposits. This can lead to a very difficult and challenging scenario, which may force the bank to close and depositors lose money. This is partially the reason why different loans carry varying loan rates. Usually, the higher the risk associated with the type of loan as well as the borrower, the higher the loan rates applied by the bank.
Banks are therefore very keen on who they put in managerial positions, especially when it comes to the processing and approval of loans. Because aside from ensuring that loans and its corresponding rates are paid properly, they must also take into consideration competition with other banks. Borrowers definitely want to take out loans with lower interest rates. However, loan rates cannot be brought down significantly because it can put the bank at risk.
It is equally important to point out that loan rates do not apply to mortgages, unpaid bills, or credit cards. Knowing your prevailing interest rate is crucial because it adds up to your outstanding balance. You need to consider that it is possible that the loan rates can increase the amount of the loan even if you are regularly making payments. This happens if you are paying an amount that is lower than what the interest rate adds up.
The loan officer job position in a bank can be critical in balancing the adequate number of borrowers to sustain profit and ensuring that loan rates remain competitive and acceptable.
Lisa Rathfield is an economics major who gives loan quotes to borrowers in the bank where she works.