Interest rates are the amount of money that is paid (or earned) on a loan, deposit or investment. Borrowers want low rates to pay less for the money they borrow, while lenders or investors want high rates to earn a greater return on their investment.
The rate at which accumulated interest is calculated depends on several factors, including the type of debt or investment, compounding periods, and the economy. For example, mortgage loans are usually based on fixed interest rates, while credit card debt is often based on variable interest rates that can change over the life of the debt.
In addition to these factors, the actual interest rate paid or earned also depends on the specific terms of each individual loan or deposit. For example, it is rare for a lender to unilaterally increase or decrease the rate on a variable interest-rate loan based on market conditions; in most cases, that type of rate adjustment is governed by the specific terms of the loan agreement.
Personal factors can play a role in interest rates as well. For instance, some borrowers are considered to be more creditworthy than others and may receive lower rates due to their ability to repay the debt. Other factors that influence interest rates include the availability of credit and demand for loans. In general, lenders will offer lower interest rates when there is more demand for credit and loans than available supply. Similarly, borrowers can help to lower their own interest rates by borrowing during times of strong economic conditions.