The main objective of any lending firm is to gain interest and popularity in the market. Being that the firm is new in the market, as a consultant I will advise the management to consider the following factors before setting interest rates, account commissions, fees, and charges.
First, the firm should consider the supply and demand of the credit in the target market. An increase in demand for loans will raise the interest charges and other banking fees, in case the competition is high in that particular area, then the farm will set lower rates and favorable commissions on savings to attract more customers as they market their services.
Another factor to consider is the cost of funds, the firm's sources of funds, and credit availability will also determine the decision for the lender to set the repayment fees, commissions on customer deposits, and other charges. However, fundamental macroeconomic indicators such as inflation and exchange rates should also be considered. Therefore if the firm set their interest rate and other charges lower than inflation rates then the firm will not able to maintain its banking services thus close out in the short period.
Furthermore, the interest rate for each different type of loan depends on the credit risks, tax considerations, and convertibility of the particular loan. The greater chances that the borrower will fail or delay to pay increases the rate of repayment fees, on the side of the loan is secured then the interest fees will be lower.
Lastly, the firm should consider the cost of maintaining its banking activities such as infrastructure, payment of salaries, and wages to its workers, the cost of funds the bank pays as commissions to its customers, and also the cost related to nonperforming loans and liquidity premium cost to ensure the constant availability of funds to its customer any time they need.