Loans and inflation are tied together like milk and cereal. Both of them exist at the same time and they seemingly have no correlation to each other. But, when you combine them together, you get something delicious. Or, in a business sense of words – profitable. But, banks are a work of genius and it takes a whole lot to outsmart them in any way. They know how interest rates on loans work and how inflation takes place, and how it affects the marketplace. So, now’s a great time to learn about how inflation can impact your loans, and do you have to something to worry about.
First things first, inflation happens all the time. It’s a proven fact and a measured outcome in the last 200 years or so. Every year we get a rise in inflation of about two percent. But, it isn’t so simple, and this is not a process that only affects the price of a pound of milk or a loaf of bread. Currently, more jobs are being opened than at any point in history. That’s logical if we take into account that there are more people now than at any point in history. Nevertheless, an average of 240 thousand jobs are being opened each month. Click here to read more.
If we look at things from another perspective, this is the 86th month in which employers have added jobs. And also, another interesting statistic is that unemployment has dropped to less than four percent, which is excellent news. The last time the world was at this stage was in the year 2000. For some economists, this means that we’re moving fast into the future. The economy will rise up quite quickly and solve the sluggish inflation and leave everyone with figures much higher than anticipated.
Variable Rate Loans and Inflation
During inflation times, interest rates aren’t far behind. When lenders give loans, they take these times into account. This, in turn, changes the interest, so it suits them, and based on confident anticipation, they get a profit. Even in the worst case, if the lender is entirely wrong, they’ll be on default. That means they’ll get the exact same money that they lent. These loans with variable rates are uniquely designed with inflation times taken into account. If they were a long time, this would make them utterly unprofitable for the lenders.
On the other hand, the borrowers can either give back a little bit more money, or they can be at a default too. This is just how things are and how the world works. You can read more about best forbrukslån here.
How can inflation help the borrower?
Long term loans are the ones who benefit the borrower. It makes sense after all. We’ll look at the simplest scenario. You borrow money, and then inflation comes. You still owe the same amount of money, which is now worth less, and you can pay it off easier, leaving you with a surplus. But, it’s not that simple. There is a hidden cost to this, and you will feel it because it’s a negative one. During these times, everything gets more and more expensive.
This increases the entire standard and cost of living. Since everything is more costly, you have to prioritize things. Some things will be more important while others will not. This can make paying off the loan prolong itself for a more extended period, which will benefit the lender in the long run. It’s essential to be smart in these kinds of situations. You need to know what’s happening and what’s going to happen to make correct investments and make the loans easier to handle. Here’s some more info: https://www.nytimes.com/2018/03/16/your-money/impact-investing.html
A few final words
You can take a loan for almost anything in the world. A new car, a new house, starting a new startup company, paying off medical bills, etc. But, when you do so, always take into account the two percent inflation every year, and calculate by yourself, how you will be doing in the future. Two percent looks like a little, and it feels like a little. But, add it up for a few years, and you’ll see that it’s not a small amount. Be smart when you do your business with the banks.