Micro Loan Interest Rates
Whether taking a conventional loan or a microloan, the interest rate is a sensitive topic that one should clearly understand before making any commitments.
The interest rate significantly affects the amount of money you end up paying after servicing a loan.
Low Interest Microloans
Microloans give the poor a financial inclusion as a way to alleviate poverty. Some microfinance institutions provide the small business owners loans at very low-interest rates. However, there are also profit making micro lenders who charge quite high rates on loans.
Factors Affecting Microloan Interest Rates
Higher costs of operation attract higher interest rates. These costs include staff salaries, rent, utilities, etc. Some microloan providers even go to the extent of sending field officers for visitations to monitor the progress of the entrepreneurs, which can be costly.
Though the microloans are short-term and the effect on interest rate is minimal, some economies are unstable, and microloan providers have to charge high-interest rates to take care of the uncertainties. Inflation lowers the future purchasing power of money.
How to Get the Best Interest Rates
Build your creditworthiness
Getting microloans and paying helps build your credibility and with time you will be able to negotiate for better interest rates.
Research: like banks, microloan providers have different rates, always shop around for the best interest rates.
Do the math
Do not just look at the percentages given by the lender, make actual calculations. You will be surprised how working with exact figures saves you money. Furthermore, what is the research for if you cannot pinpoint how much you are saving?