Impact on Interest rates

Impact on Interest rates

1. Interest rate

   • Percentage reward or payment over a period of time that is given to savers on savings or paid by borrowers on loans.

2. Cost of borrowing

   • An entrepreneur may not have a capital to start or expand a business without borrowing. Typically a bank will give a loan or overdraft.
     • Business pay interest
       • on top of repayments for the loan
       • on any amount it is overdrawn

3. Fixed and variable interest rates

   • Fixed interest rates
     • Do not change over the life of a loan. A business could lose out on a fixed contract if the rate falls.
   • Variable interest rates
     • Change over the life of the loan. They can be more risky and harder for a business to plan against.

4. Rise in Interst rate

   • Increase the costs
   • Businesses on variable costs may struggle to repay loans.
   • Small businesses are less likely to borrow money to start up or to expand.
   • Customers less likely to spend money as borrowed money costs more, so consumer spending falls.

5. Fall in Interest rates

   • Lower cost of borrowing
   • More money to spend and cash flow will improve.
   • Businesses may borrow money for a start-up or expansion.
   • Customers are more likely to borrow and and to spend their money. Consumers spending rises