Interest rates (Edexcel GCSE Business): Flashcards
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What interest rates represent
What interest rates represent
% cost of borrowing or reward for saving money
2 types of bank finance for businesses
2 types of bank finance for businesses
Business loans and overdrafts
2 key costs when businesses borrow
2 key costs when businesses borrow
Interest on loans & interest on overdrafts
Fixed interest rates characteristic
Fixed interest rates characteristic
Remain constant throughout entire loan period
Main benefit of fixed rates
Main benefit of fixed rates
Predictable costs and budget certainty
Disadvantage of fixed rates
Disadvantage of fixed rates
Cannot benefit if interest rates fall
Variable interest rates characteristic
Variable interest rates characteristic
Fluctuate based on market conditions
Risk of variable rates
Risk of variable rates
Create uncertainty, difficult to predict future costs
Rising rates effect on borrowing
Rising rates effect on borrowing
Higher borrowing costs, loans more expensive
Rising rates effect on consumers
Rising rates effect on consumers
Reduce spending, demand falls
Rising rates effect on cash flow
Rising rates effect on cash flow
May worsen due to increased debt servicing costs
Falling rates effect on borrowing
Falling rates effect on borrowing
Reduced costs, expansion more affordable
Falling rates effect on consumers
Falling rates effect on consumers
Increased spending, higher disposable income
How to calculate annual interest on a loan
How to calculate annual interest on a loan
Loan amount × interest rate (%)
Impact of rate rise from 3% to 5% on $100k loan
Impact of rate rise from 3% to 5% on $100k loan
$2,000 extra per year