What are lending and borrowing interest rates?
Borrowing interest rates and lending interest rates refer to the costs associated with borrowing and the return earned on lending respectively.
Differences between rates
1. Perspective
Borrowing interest rates; They are viewed from the borrower’s perspective, representing the cost they must pay to borrow funds.
Lending interest rates; They are viewed from the lender’s perspective, representing the return they earn for lending money.
2. Purpose
Borrowing interest rates; They are applied when individuals, businesses, or governments borrow funds from lenders in any financial institution, you can acquire one at www.rg.co.ke.
Lending interest rates; They are usually applied by financial lenders when providing funds or loans to borrowers.
3. Direction
Borrowing interest rates; They indicate the cost paid by borrowers, when a customer is charged higher interest rates that means that he or she will pay more in interest and vice versa.
Lending interest rates; These indicate the return earned by lenders after charging on loans in general, so higher rates mean that the lenders will receive more interest income.
4. Risk assessment
Borrowing interest rates; They reflect the risk associated with lending to a particular borrower. Lenders should consider if the customer has any record of default or if he or she is consistent in saving . Highly risky customers usually face higher borrowing rates in order to compensate for the increased risk of default.
Lending interest rates; They factor in the overall risk of lending but from the lender’s perspective.
5. Market factors
Both are influenced by market conditions such as central bank policies at www.centralbank.go.ke ,inflation, supply and demand dynamics and overall economic factors. However, the factors considered may vary depending on the market and the type of loan or investment. In summary, it’s important to note that interest rates can vary based on loan duration, security, customer’s creditworthiness and market conditions. These rates are expressed as annual percentage rate to provide a standardized comparison