Personal Loans: Fixed or Floating Interest Rate?

Before applying for a personal loan or any other loan, applicants usually pay much heed towards the interest rate, loan amount, repayment tenure and other fees & charges offered by the bank/NBFC. Many of us skip checking the interest rate type, whether it is fixed or floating interest rate. Your loan EMIs get impacted due to the opted interest rate, if it is Fixed or Floating.

Therefore, it becomes even more important to understand these two loan interest rate types. Before locking the personal loan interest rate, do a comparison check between the two to further know them in detail.

What is a Fixed Interest Rate Personal Loan?

Fixed Interest Rate Personal Loan means that the offered interest rate will remain fixed and will not fluctuate throughout your entire loan tenure. The fixed interest rates are comparatively higher than the floating interest rates. It also depicts the certainty of exact loan EMIs that you need to repay during loan tenor in advance.

What is a Floating Interest Rate Personal Loan?

Floating Interest Rates Personal Loan typically mean that the interest rate can change during the loan tenure due to types of lending rates. If you opt for a Personal Loan with a floating interest rate, then you must be prepared for any change in the interest rate during the loan tenure.

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Benefits of Fixed Interest Rates

• Interest rate remains constant throughout the loan tenure, irrespective of any changes in the interest rate regimes irrespective of any changes in the interest rate regime.
• Loan EMIs does not change, so it provides certainty in cash flow management and budgeting.
• Availing fixed rate personal loans shall be beneficial during a rising interest rate regime, i.e. when the repo rates, broader market interest rates and loan rates are rising. Borrowers will not have to worry about increasing EMIs due to rising interest rates.

Comparison of Fixed Rate Personal Loans

Note: The above-mentioned interest rates may change and shall depend on the sole discretion of the bank and RBI.

Benefits of Floating Interest Rates

• Interest rates are comparatively lower, as compared to fixed interest rates.
• Availing personal loans at floating interest rates would be beneficial during a falling interest rate regime, i.e. when the repo rates, broader market interest rates and loan rates fall. Borrowers would save money due to falling interest costs and would also benefit from falling EMIs during a falling interest rate regime.
• Saves you from incurring prepayment fees on prepayment or foreclosure of your personal loan

Comparison of Floating Rate Personal Loans

Note: The above-mentioned interest rates may change and shall depend on the sole discretion of the bank and RBI.