How Interest Rates Affect Our Purchasing Decisions

How Interest Rates Affect Our Purchasing Decisions -...

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How Interest Rates Affect Our Purchasing Decisions Sandy Cromer 09/04/2011 Axia College Ann Bailey
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High interest rates create a disincentive to spend money . Because consumers know they will pay more money over the course of the loan, they may choose to postpone buying expensive items such as cars and homes. Often consumers choose to save their money in an interest- bearing account instead because they are receiving a higher return. Higher interest rates cause deflation, which means the purchasing power of the dollar is stronger. When interest rates are high, there is a much
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Unformatted text preview: greater supply and fewer buyers causing prices to drop or maintain. Low interest rates affect purchasing habits as well. When interest rates are low, it is more enticing for businesses and consumers to take out loans to finance large purchases. When consumers and businesses have easier access to credit, they spend more money. In most cases, low mortgage rates equate to more home purchases, and low credit card rates cause people to spend more on credit. However, low interest rates generally mean higher prices because there are more buyers and limited supply....
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