Interest rates
Interest rates refer to the rate paid for the use of money.
Rates are usually expressed as an annual percentage of the principal (the total amount of money borrowed). For example if you borrow £100 at 5% interest you must repay the amount you borrowed plus 5% of that amount so the total repayment is £105.00.
Interest rates in the UK are controlled by the Bank of England (new window) as they try to meet the government's inflation targets to make sure the economy remains as stable as possible. The Bank of England will raise interest rates if the rate of inflation is too high, and will lower interest rates to stimulate the economy. Increased interest rates incentivize saving and make borrowing money more expensive. Unless you have a fixed rate loan, changes in interest rates will affect your loan repayments.
Interest rates vary from lender to lender and will depend on which type of loan you take out. If you have a secured loan then the interest rate you pay will tend to be lower than for an unsecured loan. If you are considering borrowing money is it vital that you understand the interest rate you have been offered and that you understand whether this will change over the lifetime of your loan.
