How Are Interest Rates and Fees Calculated, and What Do They Mean for Your Business?
MENAYE FINANCE TIPS
Check the APR: Compare APRs to see the true cost of borrowing.
Know the Fees: Understand all fees involved.
Total Cost Insight: Look beyond interest rates to get the full borrowing picture.
Fee Impact: Calculate how fees influence your overall expenses and your finances.
Interest rates and fees are crucial when taking out a bank loan or using any type of financing for your business. Understanding how these are calculated and their implications is essential for effective financial planning.
Interest Rates
Calculation:
Annual Percentage Rate (APR): banks may express interest rates as an APR. The APR includes the nominal interest rate and additional charges, expressed as a yearly percentage of the total loan amount.
Nominal Interest Rate (Base Rate): The base rate charged by the bank refers to the standard rate applied to loans or deposits before any adjustments or discounts are considered. The base interest rate is typically set by the central bank of a country or a monetary authority tasked with regulating monetary policy, such as the Bank of Ghana.
Loan Fees: Fees such as origination and processing fees are incorporated into the APR calculation.
Common Factors Affecting Interest Rates:
Reference Rate (RR): GRR is a benchmark the Central Bank of a country sets. When the RR increases, it tends to push up the interest rates banks charge on loans and sometimes deposits. This rate influences borrowing costs across the economy, affecting both individuals and businesses seeking loans from Ghanaian banks.
Your Creditworthiness: Strong financial history and strong business credentials may lead to qualifying for lower interest rates.
Loan Type and Purpose: Riskier loans may come with higher interest rates.
Loan Amount and Term: Smaller loan amounts and shorter terms generally have lower interest rates.
Fees
Types of Fees:
Origination Fee: A one-time fee charged for processing your loan application.
Processing Fee: Covers administrative costs associated with setting up your loan.
Late Payment Fee: A penalty for missed loan payments.
Account Maintenance Fee: An ongoing fee for maintaining your loan account.
What Fees & Interest Rates Mean for Your Business:
Total Loan Cost: A higher APR translates to a higher total amount repaid over the loan term.
Overall Cost: Fees add to your loan repayment burden. Understand all applicable fees before finalising a loan agreement.
You can view our example APR calculations here.
