Many people yearn for the chance to get their hands on a loan, for a range of reasons. However, there is one factor that may hold someone back, and that is interest. Interest is highly misunderstood. Some people believe that it is simply the bank trying to take as much money as possible from the borrowers. Others are surprised when they find that there are additional charges for borrowing. There are those that simply accept interest, though they do not understand it. At L-Pesa, it is possible to borrow a loan, although it is worth noting that every loan attracts interest. Here is what you need to know.

What is Interest?

When L-Pesa offer a customer a loan, they are taking a risk. The microloan is giving the customer access to finance, without taking anything from them in return. This is something that many people would not do, including family. For this service to be made available, there needs to be some way that the service provider can benefit. This benefit comes in the form of interest.

This does not mean that it is all benefit for the lender. When you are saving with L-Pesa, you also get the chance to earn some interest, bringing up the total amount of money that you hold in your account with limited effort.

What Makes Interest Rates Different?

You may wonder why you and your friend can borrow the same amounts of money, and yet need to pay different amounts in interest. There are numerous factors that could affect interest rates. The first is the amount of time that will be taken to pay back the loan. Typically, the longer one takes to pay it back, the higher the interest that they will have to pay. The reason for this comes down to the value of money over time, as well as inflation. The lender needs to cushion themselves against this risk.

In addition, there is the credit score of the individual. Those who have very low credit scores are normally viewed to be of higher risk. For this reason, the terms of their loans, especially their interest may vary. With high credit scores, it can be possible to get a lower interest rate.

Get Some Help

As you make the decision to take out a loan on L-Pesa, you may choose to seek some clarification on how the interest rates are calculated. Before you take out the loan, you can use the loan calculator to get a quick look at the interest that you will be expected to pay back, and the time that you have to complete the payments. This will help you make an informed decision, and determine whether the loan gives you the value you are looking for. It is essential to keep some points in mind. L-Pesa gives loans without the need for security, and also provides these loans almost immediately after application. The interest rate should be considered in relation to these conveniences.