Finance

Fixed or Floating interest rates: What to choose?

Interest rates are one of the most critical factors for every prospective borrower to consider before applying for any Loan. You can select either interest rate for your borrowing and fulfil your ambitions. Banks offer a wide range of personalised schemes to suit your needs. Therefore, you must compare them thoroughly before finalising the deal.

Borrowers often come across terms like fixed and floating Personal Loan interest rates while discussing their requirements with the bank. The choice of interest rate affects two essential aspects, the amount of equated monthly instalments payable and repayment planning. You should understand the difference between them to select a suitable option.

Fixed interest rates

Under a fixed lending facility, the bank charges interest for the entire tenure. The interest accrual throughout the term remains constant. You can conveniently assess your fixed monthly outgoes as EMIs and plan finances accordingly. These are at a higher margin of 1% or 2% against flexible interest rates.

You should repay Personal Loans in fixed and equal instalments over the term. A fixed interest rate does not change even if the Indian financial market conditions or trends change. When the financial market slumps, fixed interest rates become the preferred option.

Benefits

Regardless of the market conditions, the interest rate remains fixed. It provides the best protection, especially in volatile situations. These are ideal for those who are good at budgeting. It is also the best for setting long-term financial goals with security and certainty. A fixed interest rate on a Personal Loan is ideal if you are comfortable with your EMI and do not want surprises.

To ensure that you meet the EMI payment deadlines without difficulty, try to keep it at 25% of your salary or less.

Floating interest rates

Floating Personal Loan interest rates mean the interest is subject to quarterly revisions. The rate offered to you on borrowing ties with the base rate set by the Reserve Bank of India based on various economic factors. The interest fluctuates in response to changes in the base rate. Any changes in them during the tenure do not affect the EMIs payable. Instead, its term varies. They are volatile and change according to market conditions.

The base rate offered by banks determines the interest. When the base rate changes, the interest rates get revised automatically. Floating rates are affordable than fixed rates. The fluctuation in the floating interest rate is only temporary, as market trends determine it.

Benefits

When you apply for a Loan on the Banking appwith a floating rate, the interest charged is lower than fixed interest rates. Your floating interest rate rises for a short duration and does not impact the entire term. Also, the repayment period reduces, making you debt-free soon and eligible for additional options in future.

Conclusion

Choosing the better alternative between these options depends on your suitability when applying for the Loan.

Ethan More

Hello , I am college Student and part time blogger . I think blogging and social media is good away to take Knowledge

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