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Getting a Personal Loan is one of the most preferred ways to handle unexpected expenses or fund major purchases. But, before borrowing, choosing between fixed and floating interest rates is an important decision to make. Borrowers should compare both options to find what suits their financial situation. The choice affects your monthly payments and the overall cost of borrowing.
For this, understanding how interest rates work is essential. Before choosing any of them, you must analyse the advantages and disadvantages of each type. With the right interest rate option, financial planning becomes effective.
What is Meant by Fixed Interest Rates?
As the name suggests, a fixed interest rate remains unchanged throughout the tenure of a loan.. It helps in easy financial planning, they remain the same throughout the tenure.
Key Advantages
Fixed rates provide predictability. Borrowers can plan their budget without having to worry about market fluctuations.
- Consistent EMI payments: The monthly instalment remains the same, thus making repayment predictable.
- Better financial planning: Fixed payments allow borrowers to manage their expenses accordingly.
- Security for long-term loans: Fixed rates are advantageous for long tenures, as they remain stable.
Key Disadvantages
Fixed interest rates may not always be the best option despite providing stability.
- Unaffected by change: Even if interest rates fall, your rates remain unchanged.
- Prepayment penalties: Some loans with fixed rates incur extra charges if repaid early.
- Less flexibility: Borrowers cannot take advantage of decreasing market rates.
What are Floating Interest Rates?
A floating interest rate changes based on market conditions. It is usually linked to a benchmark rate. You might pay less or more, depending on fluctuations. Floating rates are usually lower than fixed rates at the beginning of a loan. However, since they fluctuate, borrowers must be prepared for changes in their EMI payments. These rates are often preferred for short-term loans where market conditions are expected to be favourable.
Key Advantages
A floating rate has an appeal of flexibility and can bring savings if the market rates decline.
- Potential savings: If the market rates fall, the borrowers may benefit from low EMI amounts.
- Ideal for short-term loans: Those opting for shorter tenure can take advantage of market fluctuations.
Key Disadvantages
Despite the benefits, floating interest rates can be unpredictable.
- Uncertain EMI payments: Fluctuations make budgeting difficult.
- Higher costs during rate hikes: If market rates increase, EMIs rise.
- Requires risk tolerance: Borrowers must be prepared for interest rate changes.
- Long-term financial planning is difficult: The uncertainty of monthly payments makes budgeting for long-term periods difficult.
Which Interest Rate Option is Better?
The option depends on your financial stability and market conditions. Fixed rates suit those who prefer stability and long-term planning. Floating rates are suitable for those who can handle the fluctuations and wish to save on interest costs.
Where to Find the Reasonable Personal Loan Interest Rates?
You can consider an online loan app like Hero FinCorp, which offers interest rates based on the applicant’s credit profile and eligibility. The Hero FinCorp app offers interest rates starting from 1.58%* per month. You can choose a repayment tenure of 12 to 36 months. The tenure affects your total interest payable during the term. For example, a shorter tenure may raise the EMI amount but will save on the overall interest payable. Likewise, a longer tenure may decrease the EMI amount but will increase the overall interest payable.
Conclusion
Choosing between fixed and floating Personal Loan interest rates depends on financial preferences and market conditions. Fixed rates ensure stable payments while floating rates offer potential savings. Borrowers should assess their budget, risk tolerance, and loan tenure before deciding. The right choice helps manage repayments efficiently and reduces the overall cost of borrowing.
Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader’s discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.