What Borrowers Want to Know I'm shopping for a loan. Lenders tend to charge higher interest rates on long-term loans because they are taking a risk on future economic conditions. If they don't protect themselves against rising interest rates set by the Bank of Canada, they can lose money on the loan in the long term. When the same things cost more and more, it's called inflation. Inflated prices mean that money is not as valuable.
Lenders are concerned about prices increasing in the future.
In essence, you'll be repaying cheaper dollars than the ones you borrowed. So lenders add an assumed inflation rate into the interest rate you will pay. You can't influence some of these factors, but you can have an influence on factors such as risk by having a good credit rating .