When you borrow money this always entails some costs for the borrower. Banks and other financial institutions receive revenues from the lent money and make their business on this. During last two years the European loan market was very instable and due to this the rates of short term loans were rising. This occurs in spite of a number of government laws which try to stop this rise.
Short term loans basis
In the event a bank or a company needs a short-time loan, they usually turn to
unsecured loan market dealing with dollar loans lasting up to 270 days. The borrower pays to the lender a certain percentage of the borrowed amount – this is the loan’s price. That basis for short term loans rate is the so called “LIBOR” which is the three-month London International Rate. Current LIBOR is 0,54%.
What are the forecasts?
During the two crisis years the short term loans payday lending companies tried to keep the rates at a relatively low level. However, now when the world economy seems to overcome the collapse, the rates are expected to go up. According to industry observers and future markets, by 2011 the rates will grow up to 0,70% or even higher. So the operations will e more expensive both for banks and companies. This situation is very difficult for the consumers as well as the products and services’ availability is going down because the short term loans prices are going up.
The reason for short term loans rates increase
The main cause for short term loans rates going up is the risk level increasing. The loan price (i.e. the loan rate) is mostly determined by the risk level. The more risky the
online personal loan is the more expensive it is. This situation is extremely very complicated for economies of some European countries (Greece, Spain). Lending money in these countries is very risky as their economies are too unstable. And if the short term loans rates continue growing, the United States Federal Reserve which sets the bank-to-bank lending rates will face significant difficulties.
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