Interest Rate Increase

Grounds For Interest Rate

Increase

Have you ever wondered why you have to pay interest on loans, goods and services? The reasons are many, ranging from the fact that, it is a source of income to the government and to the lenders in form of tax. Interest rates are also a caution against inflationary expectations. This means that, if the value of the money lent out fluctuates to the negative, the lenders will get back an amount that is almost equivalent to what they lent out.

interest rate increase

Other reasons are that this form of tax is also an alternative investment to the lender. Since the lender has to choose between lending out his money and investing it elsewhere, he charges the additional fee for it to represent the gains he would have made from other investments. It also means that when the lender gives out the money, he has deferred consumption on goods and other services. It therefore that marks a positive gain.

On the issue of interest rate increase, there are many reasons why lenders might hike the rates. The most common reason why they do so is to charge you for late payment on your credit card. This serves as a penalty so that in future, you are able to adhere to terms and conditions of your agreement. However, a lender is not supposed to slap an increase on the rates without prior notification, which is in most cases, 15 days.

Getting too close to your credit limit, declaring bankruptcy, owing too much, having too many credit cards and giving a bouncing check may also be good enough grounds for your creditors to increase these charges. Other conditions under which the rates may go up are sometimes beyond human control since they are controlled by the market forces.

By Peter Gitundu