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How are interest rates calculated? HOW ARE INTEREST RATES CALCULATED? The interest rate you’re offered when you apply for a loan is based on many related factors. Some factors are within your personal control. Others depend on external economic conditions. This infographic explains the factors that can impact interest rates. It then provides ways in which you can build strong financial habits to help you secure the best interest rate a lender offers. The interest rate you’re offered when you apply for a loan is based on many related factors. Some factors are within your personal control, like your credit score or the loan solution you choose. Others depend on external conditions like inflation. Together, the internal and external factors impact the interest rate you receive. EMPLOYMENT Regular employment may be a LOAN TERM Based on your lender, the length INDIVIDUAL of time you choose to repay contributing factor in the rate FACTORS your loan may impact the rate you’re offered because it YOU CONTROL you’re offered. history, the loan term you select and if you choose to indicates financial stability. First, there are individual factors affecting interest rates that are in your control, including your credit score, your employment secure your loan. Credit score Your credit score is a ranking from three hundred to nine hundred that is based on your borrowing and payment history. Generally, the higher your score, the lower the rate you’re offered. CREDIT SCORE Employment Your credit score is a ranking from Regular employment may be a contributing factor in the rate you are offered because it indicates financial stability. SECURITY Homeownership boosts credit-worthiness. Additionally, securing your loan with equity in your home may qualify you for a lower rate. 300 to 900 that is based on your Loan term borrowing and payment history. Based on your lender, the length of time you choose to repay your loan may impact the rate you are offered. Generally, the higher your score, Security the lower the rate you’re offered. Homeownership boosts credit worthiness. Additionally, securing your loan with equity in your home may qualify you for a lower rate. ECONOMIC FACTORS Second, there are also economic factors affecting interest rates that are outside of your control and can impact the interest rate you are offered. These include inflation, the policy INFLATION DEMAND interest rate, bank prime rates and overall demand. Inflation is the gradual increase People spend money when the Inflation in the cost account of goods economy is strong. Based on Inflation is the gradual increase in the average cost of goods andaverage services. Lenders for the expected rate of inflation to protect against future losses. and services. Lenders account market conditions, rates may Policy interest rate forofthe expected rate of inflation rise or fall to meet consumer The policy interest rate is the rate at which the Bank Canada lends money to major banks, influencing bank prime rates and, consequently, all lenders’ rates. to protect against future losses. and business demand. Bank prime rate Major banks set their prime rates based on the policy interest rate, plus additional percentages. Non-bank lenders borrow the money they lend out, and the layering of loans can impact the interest rate offered. Demand People spend money when the economy is strong. Based on market conditions, rates may rise or fall to meet consumer and business demand. POLICY INTEREST RATE The policy interest rate is the rate at which the Bank of Canada lends money to major banks, influencing bank prime rates and, consequently, all lenders’ rates. WHAT CAN I DO TO THE BEST RATE? What canGET you do to get the best rate? KEEP CREDIT AVAILABLE Building strong financial habits can rebuild or Keep credit available Use less than twenty five percent of available credit to show you’re able to manage credit limits. improve credit over time Limit credit report andinquiries increase lenders’ trust Too many creditor inquiries may impact your credit score. in you. Following these tips Increase minimum payments help toyou the best managing debt. Pay more thancan the minimum showget you are proactively Use less than 25% possible rate. LIMIT CREDIT REPORT INQUIRIES BANK PRIME RATE Major banks set their prime rates based on the policy interest rate, plus additional percentages. Non-bank lenders borrow the money they lend out, and the layering of loans can impact the interest rate offered. INCREASE MINIMUM PAYMENTS CONSIDER DEBT CONSOLIDATION Keeping credit available, limiting credit report inquiries, increasing minimum payments and considering a debt consolidation loan can help you build strong financial habits and rebuild or improve credit over time, which increases lenders’ trust in you. of available Consider debt consolidation It can help rebuild credit when you are faced with multiple bills and can simplify your finances. credit to show you’re able to manage credit limits Too many creditor inquiries may impact your credit score Pay more than the minimum to show you’re proactively managing debt Help rebuild credit when faced with multiple bills and simplify your finances A CitiFinancial Lending Specialist will work with you to find a loan solution A CitiFinancial Lending Specialist will work with you to find a loan solution and interest rate that is right for you. andtointerest rate that’s right for you. Apply online at CitiFinancial.ca, Apply online at CitiFinancial.ca, visit your local branch or call 800-995-2274 get started today. visit your local branch or call 800-995-2274 to get started today. © 2016 CitiFinancial. ® CitiFinancial is a registered Citigroup Inc. Used under In Ontario, CitiFinancial Canada, Inc. is licensed as brokerage 10821. © 2016 CitiFinancial. ® CitiFinancial is a registered trademark of Citigroup trademark Inc. Used underof license. In Ontario, CitiFinancial Canada,license. Inc. is licensed as brokerage 10821.