Looking out for a personal loan? Well, it is the most popular form of debt and the pandemic has seen a rise in the number of applications. With job losses and salary cuts, a personal loan has been a part of life to meet daily obligations. An instant personal loan is affordable and flexible for anything under the sky without any rigidity in end usage. You can meet your daily expenses and also get a big fund for a big expense like a wedding or a medical emergency. A personal loan makes life easy with the instant fund in your account within few hours after minimal online documentation. However, even after all the flexibility, debt is always a burden and commitment. This is because the repayment amount is always higher than what you borrowed. The rate of interest charged on the Personal loan increases the debt and you need to pay a high EMI every month. However, there are two types of personal loan interest rates available in the loan market. If you don’t have an idea, we are here to give you a complete gest of everything you need to know to choose better. Have an idea about floating vs. fixed rate, and choose the best one for your loan experience.
What is a fixed rate of interest?
A fixed-rate of interest remains unchanged throughout the tenure. You start with one rate of interest at the beginning of your loan and you end the loan with that rate. There are no fluctuations in the rate as per any changes. The market or financial institutions cannot change the fixed rate. It cannot be increased or decreased under any market conditions or scenario. It is the most common form of rate of interest that prevails in the market where the rate is always fixed and not subject to changes during the loan term. You cannot negotiate; neither the loan provider can negotiate for any sort of changes in the loan rate of interest.
What is a floating rate of interest?
A floating rate of interest is not very common in the market, but you can find one easily. It means the rate of interest in the Personal loan is not fixed. It is subject to changes as per the market conditions or financial situation. You do not end up with the same rate that you started your loan with. You will face a lot of ups and downs in the rate of interest during the loan tenure. Due to the market conditions, you can experience fluctuations in the rate of interest and that is why it is called floating rate. If you are lucky you can get a low rate, and sometimes you can also get a high rate of interest. The rate of interest is never fixed here and if you are going for this, you should be ready for the fluctuations.
Floating rate vs. fixed rate
- A fixed-rate remains unchanged throughout the loan tenure. This helps you to plan your finances in the best way so that you can cover up the loan without hurting your fixed obligations. Rate changes will create a lot of confusion. However in a floating rate, the rate of interest is never a fixed one. You may start with a low rate, but it may rise with time due to the market conditions. It will become a burden for you to manage a higher rate of interest suddenly. A fixed-rate gives you the ability to manage your finances in a better way without giving fluctuations.
- A fixed-rate does not get affected by market conditions. Whether it be good or bad, there will be no effect on the fixed rate of interest. However, in a floating rate of interest, the market is the main aspect. The floating rate keeps changing as per the market. If the market conditions are good you can enjoy a low rate, but there are chances of getting a high rate too. Sometimes it gets very high and that becomes difficult for the borrower to manage the high EMI under floating rate of interest.
- A fixed-rate of interest helps you to plan your loan in a better way. When the rate of interest is fixed, you can easily manage and plan your EMI. However, when the rate is floating, it becomes difficult to plan your EMI.
What to choose?
A fixed rate of interest is good for those that do not like risk as per market conditions. It is good to go for a rate that is fixed. Individuals that are good with risk and changes can opt for a floating rate of interest.
The personal loan interest rate depends upon various factors. Out of the two types, you should choose the one that looks better for you. A fixed-rate instant personal loan is always a stable one to plan your debt in a better way.