The interest rate for the same loan can be measured and displayed in substantially different values. Thus, taking a loan of 100, paid 102.50 a quarter 92 days later, which intuitively seems to correspond to about 10% annual rate, can correspond: rate to 9.66% in day-to-day money market and to 9.78% in rate ultimately money market.
There are two reference markets in interest rates from 0 to 30 years, which are said to have a high “liquidity” because there are always a lot of transactions. The main market government bonds, for example, that contracts on Eurex Bunds and the swap market against IBOR.
The market for government bonds provides the curve of risk free interest rate, the swaps, the interbank interest rates, that is to say, of short-term interest rates, for which banks and the Car Loan Broker play a major role.
A credit score is a numerical value based on a statistical analysis, which represents the credit worthiness of a person. With credit scoring companies evaluate creditworthiness of customers or partners according to a predetermined method.
Scores are not only used for credit decisions, but also for setting interest rates and credit lines. Motivation is to avoid risks and to obtain a statistically based method to make objectified decisions. The better the underlying scoring model reflects the reality, the less defaults there will be. Scoring models and their influent characteristics must be constantly maintained with the assistance of a Car Loan Broker.
The specific rules and algorithms of a scoring and weighting are called score card. There are various techniques to develop appropriate scorecards, such as logistic regression, discriminant analysis, artificial neural networks and other methods.
Internal and external scores
Credit scores can be on a company’s own data (master data about people, credit application data) based or external data from credit bureaus.
Internally determined credit scores do not necessarily represent external ratings, as such there maybe different default probabilities.
Banks create internal point-in-time ratings, ie a default prediction for one year after assessment time point, while external ratings are based on a “through the cycle” approach, ie a default prediction based on the economic cycle.
The interest rate on a loan (expressed as a percentage of the loan amount) is paid by the borrower to the lender. The rates and terms of payment of such compensation shall be determined at the conclusion of the loan agreement.
This percentage takes into account the term of the loan, the nature of risks and the guarantees offered by the lender. The use of interest rate applies in many areas from financial instruments, savings products (savings account).