When interest rates are low there are a number of benefits for consumers, businesses and the economy in general. Consumers save money with finance charges on various credit products. Low interest rates can have an affect on the economy during a recession.
Effects
When interest rates are low consumers can obtain mortgages, auto loans and other credit products cheaper than they normally would. The don't pay as much in finance charges, which helps them save money.
Function
A low interest rate means that when making monthly payments, more of the payment goes towards the principal balance instead towards interest. That can lead to a reduction of personal debt.
Function
During a recession the Federal Reserve will lower interest rates. Low interest rates can entice customers to purchase more credit products and loans. This activity helps to boost and stimulate the economy. People buy homes and automobiles when rates are low.
Considerations
A business can take out loans at low interest rates. Low rates help a company lower their cost of operation, which contributes to their profit margin and makes them more likely to spend more.
Benefits
As economy activity picks up, demand for products increases. In order to meet the demand, companies and businesses will hire more workers. This activity can create jobs and help stop the surging unemployment rate.