In other words, a client takes a loan from a bank for a certain period of time. Every year the interest rate on the loan increases by a certain value. The calculator determines the accrued amount and income of the bank.
Floating interest rate
Floating interest rate - interest rate on loans, the amount of which is periodically reviewed at agreed intervals (interest periods).
Usually floating interest rates are applied in conditions of high inflation rates and sharp fluctuations in the level of loan interest, as well as in the international bond market.
The floating interest rate (base) is usually taken as a generally recognised indicator of the interbank lending market, for example at LIBOR (London Interbank Offered Rate). LIBOR is used for foreign currency loans.
In favourable market conditions, a floating rate loan product may be favourable to the borrower, but the borrower bears additional risk compared to a fixed rate loan product.
It is expected that due to the crisis the practice of floating interest rates on loans to individuals may become widespread in the near future. Usually, the purpose of introducing floating interest rates is to reduce the liquidity and interest rate risk of a bank.