Interest rates refer to the percentage that consumers will have to pay for their credit. Interest rates can be set by financial institutions although there is usually legislation that puts a ceiling on this percentage in order to ensure that interest rates are not too high. Interest rates are the amount that the debtor will have to pay for the credit that they have taken out. Fluctuations in interest rates can be used to evaluate an economy at a given time although they cannot be looked at in a vacuum.
Interest rates can be used by banks including the central banking authority in a state for the purposes of influencing consumer behaviour. When interest rates increase consumers should contract their spending with the converse being true when there is a decrease in interest rates. However, other factors such as increasing incomes may affect these results or basically render the method ineffective.
There are a variety of factors that impact how much interest rates one would pay. These include economic policy, law and the rates as per financial institutions amongst others. Furthermore, people who are borrowing the same amount at the same time may be subjected to different interest rates depending on their respective histories. Those who do not have a good history of paying back their loans may be charged higher interest rates although this cannot exceed the maximum as per law.