Mechanism for Determining Loan Interest Rates

When we want to apply for a loan to the bank, of course one of the things that we always question and consider is how much the loan interest rates are applied by the bank.

As we know that each bank applies different interest rates on loans. In this case, each bank does have the freedom to determine how much the interest rates they want to apply to debtors, but still within the corridor of rules set by the government as the holder of the regulation.


Interest is one of the most important parts in the banking world because it is a weapon for profit

loan interest

You could say that interest is a reward given by the debtor because it has been allowed to apply for credit by the bank. But apparently, in the banking world there are several types of loan interest rates, namely:

  • Simple interest is the interest yield from the loan principal amount, the interest rate for each period and the loan tenure taken.
  • Interest rate or compound interest, ie interest from the principal amount of the loan that will continue to change at the end of the period together with the addition of the principal and interest.

In addition to the two types of interest above, many banks also apply fixed and floating interest rates. Although the loan interest rates applied by each bank vary greatly, in general, the interest rates that are often applied are 11.25% to 13.30%.

In the banking industry, interest rates in recent years have tended to increase. For microcredit, loan rates set by several banks range from 16% to 23%.


The occurrence of interest rate competition that exists in banking companies today


According to many observers, it is largely determined by the owner of a large fund that is able to control almost 45% of the source of the relevant bank funds.

This is of course closely related to the frequency of the Indonesian banking industry to get funding from owners who have large funds. They pressured banking companies to give high interest on the funds they deposited.

The existence of interest rate competition in Indonesia is actually not something strange because indeed each bank is given the freedom to provide different interest rates. This is actually also one of the marketing strategies because we know that customers tend to choose banks that dare to provide low loan interest rates and high savings and deposit rates.

The government, in terms of setting interest rates, receives input from banks under their auspices, especially those registered with the Deposit Insurance Corporation or LPS. Determination of the maximum interest rate is made by taking into account and taking into account the cost advantages in placing customer funds at the interest rate of SUN or Government Securities.

After setting interest rates by the government, banks in Indonesia must lower their maximum interest rates if they are not in accordance with government regulations. In addition, banks are also required to extend credit very carefully and consider the ability of the funds they have, this is solely to prevent the occurrence of default by customers. To monitor banks in setting loan and deposit interest rates, the government appoints the Banking Supervision Department.

Determination of loan interest rates that are too high by the banking industry will not give them an advantage. Indeed, if seen at a glance, it will provide benefits to banks, but of course over time there will be many customers who choose to seek loans at banks or other financial institutions that apply lower interest rates.


Interest rate fluctuations determined by the government and banks

Interest rate fluctuations determined by the government and banks

These are also greatly influenced by the increasing number of banks operating in Indonesia. The high competition between one bank with another, often forcing banks to dare to suppress interest rates that they apply.

For this reason, the community as customers should be careful and smart in choosing a bank that will be used as a place for credit applications. Do not let customers get stuck with the imposition of high loan interest rates even though there are many other banks out there who dare to provide much lower interest rates.

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