What Factors Determine Interest Rates

While we talk of debts, whether in the form of credit card debts, or in case of loans; a major aspect is that of interest rates payable. As it is, the interest rates fluctuate from borrower to borrower. This depends a lot on your ability to pay, as well as your credit worthiness. So, if you are in the fixed income category, then there are high chances that you will be required to pay a lower rate of interest than a person who does not belong to a fixed income category.

As it is, your credit worthiness is the most important factor in determining the interest rate, which is going to be applicable to you. As it is, every body would like to pay as less as possible. Yet most people end up paying huge sums of interests, mainly because, their credit scores are not good enough. It is therefore; better to get your credit score in good shape.

As it is, there are several factors, which determine your interest rate, as well as your creditworthiness. The following are some o the factors, which determine the interest rates payable on your debt:

1. The first factor, which determines the interest rate, is whether you make timely payment on your debt or not. Punctuality in payment is a very important factor in deciding the interest rate applicable to you. Even if you do not belong to a fixed income category, but if your past record boasts of timely and punctual payment, then you can easily negotiate your way into availing the lowest interest rates for yourself.
2. Another important factor is that of the amount of payment that you are making. If you are satisfied by paying just the minimum amount required, then it might not go down too well with your credit rating, simply because, all the unpaid amount, which is due, would add to the principle amount and you will have to pay interest on it as well. This is likely to pose problems for you in future. If you make payments more that the minimum amount, then you will do a great favor to your credit rating.
3. Along with this, it is also important as to how much of the credit limit offered to you, is being utilized by you. So, if you are utilizing around thirty to forty percent of your credit limit, then it creates an image of sensibility and responsible behavior on your part. This too would be very effective in deciding the interest rate which would be applicable to you.
4. Your source of income is also an important factor in determining your interest rates. People with small and medium sized business are more likely to pay a higher rate of interest, unlike people with fixed income.

The above aspects, if taken care of properly, would be quite helpful in availing the lowest interest rates. As it is, it is always better to pay less. So, why pay more, when you can settle for less.