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**FUNDAMENTALS OF INTEREST RATES**

**What is interest?**

Interest is the price paid for the use of bank funds. They are mainly monetary funds.

If the interest is expressed as a percentage we are talking about the interest rate.

**What is interest rate?**

For interest rate we can say that this percentage is paid to the bank because the use of financial resources.

The interest rate is expressed in% (percent) and it will be determined based on the type of loan, the repayment period, the competition, inflation and so on.

Today we have many ways to calculate interest rates:

**1. Nominal interest rate
2. Conformal interest rate
3. Proportionate interest rate
4. Effective interest rate
5. Default interest rate
6. Compound interest rate**

**What is nominal interest rate?**

This is the rate that can be fixed or variable. As well as other interest rates is having significant percentage. What will be this interest rate, it depends on supply and demand in the financial market. The most common nominal interest rate determines how the monetary unit payable per unit of loans and used for calculation of regular interest given credit.

**What is conformal interest rate?**

This is the rate at which produces the same amount of the loan, regardless of whether the interest is calculated several times a year or once at the end of the repayment period.

**What is proportional interest rate?**

After this interest rate estimated by different interest amounts depending on whether the interest is computed once at the end of the repayment period or more times during the loan repayment.

If the interest is calculated several times during the repayment period results in a greater amount of total interest.

If calculated once at the end of the repayment period will receive a smaller amount of total interest.

**What is effective interest rate?**

Represents the real cost of credit. What is interesting in this interest rate is under what conditions different banks offer the same loans.

To clarify the effective interest rate INCLUDES fees and commissions that we pay to the bank for the loan approval. There include processing costs, the cost of the loan, the amount of insurance premiums, costs of opening and maintaining accounts, and other costs which are a condition for the use of credit.

**What is default rate?**

As the word itself says, this rate is calculated if the client fails to fulfill obligations on time, with the provisions of the concluded contract.

**What is compound interest rate?**

This interest rate is calculated and charged from the moment when you are granted loan to the moment when you start to pay it off. Depending on the business policy of the bank, the bank may charge interest rates as we have said before the start of the loan repayment, after the completion of repayment of the loan or annuity (in installments).