Fixed Interest Rate vs Floating Interest Rate: Here’s What You Should Know

A personal loan is a collateral-free product that serves diverse needs. From application to disbursal, the entire process is 100% digitised via a mobile loan app. The best loan from the top digital lending company offers a rate of interest that remains fixed for the entire tenure. This is known as a fixed rate. It comes with multiple perks like the EMIs are predictable and not affected by current market conditions. It helps to plan them more accurately rather than a default. There is another kind known as the floating interest rate. This will vary as per the market scenario but not for the entire loan term.

Both have their sets of pros and cons. Having a clear idea beforehand will help you make an informed financial decision while taking a personal loan. Here’s a look.

Fixed Interest Rate

An instant urgent loan from a trusted fintech company offers a fixed interest rate. For instance, per month, you are charged 2.5% for 90 days, 2.4% for 180 days and 2.25% for 270, 360 and 540 days. This is fixed and unlikely to change under any circumstances. The EMI will be constant every month. This is ideal for two types of users: one who lives on a tight budget and another with a low-risk appetite.

The tenure and the payments are pre-fixed, which does not hamper your financial planning and existing goals and liabilities. It ensures safety and security and is ideal for long-term loans. Consumers usually opt for a fixed interest rate when the financial market is down. You can easily block a specific rate to avoid the fluctuation scare.

Floating Interest Rate

The interest is calculated on a base rate with the ‘floating’ element. So, it stays either constant or reduces over time. Even if the rate increases, it is not for the whole loan tenure. The interest rates change as per the changes in this base rate. It is beneficial for several reasons. You can consider prepayments. It lowers the interest levied on the loan amount. This way, the debt is cleared faster, thus offering financial freedom.

But it is pretty challenging to budget with floating interest. Uneven installments can become problematic in times of economic turmoil like inflation. A non-fixed payment schedule can often compel you to pay more than you can at times. This way, borrowers might end up compromising on their lifestyle needs. Yet a floating interest can work better if you can predict a rise in your income in the near future.

Conclusion

It is a good idea to consult a financial expert. They will offer better insights on which type of interest will be ideal for your requirements. Now go ahead and download the mobile loan app from the Google Play Store or App Store.