Fixed rate is when the rate of interest that the borrower charges you is constant or not changing during the tenure of the loan. In other words, the interest rate will not change even if the market rate on that particular kind of loan either goes up or down.
- Simple and Stable. If your home loan or a personal loan is at a fixed rate of interest, you would know exactly how much EMI you need to pay every month. It is peaceful to know that at the end or start of every month, you need to pay “n” amount of money, which stays the same throughout the loan tenure. It is not subject to change which helps you be much stable and plan in your finances well. Also, this way you will only take a loan if you can manage to pay those fixed EMIs.
- Easy To Manage. The payment of fixed EMI’s is convenient. When the borrower knows exactly how much money will flow out on a monthly basis, payments become easier. The financial planning improves as you become more pro-active in your savings. Also, if you have bulk money available, you can calculate the amount of 5-6 EMIs together, since rate of interest is the same. This not only helps in quick loan repayment, but helps in saving the additional interest amount as well.
- Unaffected By Market Rates. These types of loans do not get affected by the rates of market lending. Hence, if you are a person who looks for security and stability, apply for loans that come with a fixed rate of interest. In case of adjustable or variable rates, the market conditions determine whether your EMI amount would get increased or decreased.
- Hard To Obtain. There is no doubt that these loans do come with a well-defined boundary, are certain and more stress-free to manage. But at the same time, it is difficult to borrow an amount of money, from a lender or bank.
- Some Unwanted Loss. Usually the rate of interest on loans are not subject to change, when there is a general shift in the rates, due to government policy or any other reason. In case of flexible rate of interest, like in case of personal loan, if the rate of interest changes, the borrower has to pay the new rate which may or may not be beneficial to the consumer.