Comparison Between Fixed Interest Rate vs Floating Interest Rate
It is always challenging to select the best of the two. From the perspective of borrowers, interest rates become the essential factor in choosing the lender. Whether you are applying for any home loan or personal loan, the fixed interest rate vs floating interest rate is always confusing. One may also take the help of a personal loan EMI calculator to choose the best.
Pros and cons of Fixed interest rate
In the case of a fixed interest rate, the interest rate does not change. It means that the borrower would have to pay an equal amount every single month until the period gets over. Even if the Reserve Bank of India announces an interest rate cut, it will not get affected.
The most significant advantage of the fixed interest rate is that the borrower does not face any change in EMI amount. For the entire loan tenor, the rate is the same. Hence, it becomes easy for the borrower to get hold of the future expenses adequately. In simple words, future planning becomes more manageable with a fixed interest rate.
However, the rates are higher than the floating interest rate. Also, if the Reserve Bank of India brings down the interest rate, you won’t enjoy the cut in the rate of interest.
Pros and cons of floating interest rate
The rate of interest in the case of floating interest rate fluctuates as per the market situations. The base rate, however, depends on the government securities prices. If the base rate changes due to any market fluctuations, then it will affect the floating rate.
The interest rates are, however, lower than the fixed interest rate. It is the bank’s marginal cost of lending rate and non-banking financial companies based rate.
However, the monthly installment amount for the floating interest rate varies from time to time. It can affect the overall budget of any household.
Moreover, borrowers can take up personal loans on either fixed interest rates or floating interest rates and calculate the EMI with the help of an online personal loan EMI calculator. But before you indulge in any one of these, you should check with the lender’s rules and regulations to make the best decision.
Must Read: Difference Between Fixed Interest Rate and Floating Interest Rate
