If you take out a loan, the lender will charge you an interest rate on the amount you owe. You’ll then need to pay the interest as you make your loan repayments. Let’s dive deeper into what interest rates are and how they work.
What are interest rates?
Interest rates are the costs you pay to borrow money. They’re usually expressed as a percentage and affect the total amount you’ll pay for a loan. Interest rates compensate lenders for the risk of lending to you and their inability to use the money anywhere else.
How do interest rates work?
If you take out a loan, you’ll need to repay the principal, which is the original amount you borrow plus interest. The interest rate you receive will depend on a number of factors and increase the overall cost of your loan. A lower interest rate can sometimes save you hundreds or even thousands of dollars.
When do borrowers have to pay interest rates on loans?
The type of loan you choose will determine when you pay interest. Here’s how interest works on several different types of loans.
- Payday loans: Once you receive your money, you’ll need to repay it in full plus interest when you get your next paycheck. In many cases, this will be within two to four weeks.
- Lines of credit: You can borrow as much or as little money as you’d like up to your set credit limit. You’ll pay interest on the amount of cash you withdraw during the repayment period.
- Installment loans: After you receive a lump sum of money, you’ll pay it back plus interest via a fixed number of payments or installments. You’ll do this during your repayment term, which can be anywhere from several months to several years.
- Title loans: Upon approval, you’ll repay your title loan with interest when your loan repayments are due, which can vary depending on the lender and loan terms. Fortunately, you’ll be able to continue driving your vehicle while you do so.
Factors that determine loan interest rates
There are a number of factors that can determine the interest rate you’ll receive on a loan, including:
The amount of money you borrow will play a role in your interest rate. You may get a different interest rate for a $500 loan than a $2,000 loan.
Whether you get a payday loan, installment loan, line of credit, or title loan, the type of loan you choose will affect your interest rate. Some installment loans may come with lower interest rates than payday loans, for example.
Interest rate type
Depending on the loan you take out, you may pay a fixed interest rate or variable interest rate. A fixed interest rate remains the same over the life of the loan, while a variable interest rate changes based on the market.
Loan repayment terms
The amount of time you have to pay back your loan will also affect its interest rate. If you take out a loan with a shorter term, for instance, you might receive a lower interest rate but with higher payments.
How Advance America interest rates work
Advance America offers different types of loans including payday loans, installment loans, title loans, and lines of credit with interest rates that can vary. You don’t need good credit to get approved, and can fill out an application online from the comfort of your home. Upon approval, you’ll receive the funds right away sometimes the same day you apply or within 24 hours. Visit Advance America today to learn more about the loans we offer.