Fixed Vs Floating Interest Rate – The 2 Important Loan Types

Introduction

The debate on “Fixed vs floating Interest Rate”, includes two financing options that allow investors to choose how they pay interest on their loans. If you are looking forward to applying for a loan on your car or even taking a pre-approved loan, you should know about these two types of financing options in the market. The difference between both is the risk and who is losing what. Either the lender or the borrower could be at loss with one of either type, but knowing both will give you an idea about how you can manage your finances better and make healthier financial decisions.

As we know, interest rates are what we pay on top of the principal amount to the lender as an EMI for the use of the money. Customers applying for a loan have two options based on the interest rate. You can either choose to opt for a fixed ROI or a floating/variable ROI. The choice is yours, but what you need to know about fixed vs floating interest rate before you decide is what we are going to discuss in this article! Keep reading!

What Is A Fixed Rate Of Interest?

Customers applying for a fixed rate of interest will have to pay a fixed interest rate throughout the tenure irrespective of the market changes. These interest rates are untouched by the market fluctuations and start usually high compared to floating rates. With a fixed rate of interest your monthly installments, also called EMIs are fixed. You will have an idea of what you are paying without having to calculate your EMIs monthly depending on the market conditions.

There are very few people who choose fixed ROI because of their higher interest rates. But if you are applying for a loan within a short-term repayment tenure, choosing fixed interest rates for your loan will be ideal and it will also give you a better idea of the finances and will let you calculate your capabilities beforehand without waiting for the markets to reduce interests.

What Is A Variable/Floating Interest?

Fixed vs floating interest rate is an infamous debate among several investors. Unlike fixed interest rates, floating interest rates change with the existing financial market conditions. EMIs will vary according to the interest rates or MCLR (Marginal cost of funds). If the interest rate you have paid last month is 9%, the current interest rate may be 9.85% or even 10%, if there is a 0.85 – 1% increase in the MCLR rate, depending on the financial market.

Similarly, the interest rates may fall at any given time making planning ahead on finances difficult. However, with the variable interest rates, there are several banks offering interest rates starting very low. Though they may increase in the future, the gap isn’t too high. Moreover, even if the stock changes every month, your interest is not likely to change drastically each month.

Since the variable loans are set marginally lower than fixed loans up to 2%, it is ideal in the case of loan tenures extending over a long term. Also, it is suitable for investors who wish to make a part payment or full payment in the future without any legal burdens.

Can I change my loan type from variable to fixed or fixed to a variable?

Yes. You can change your loan type at any given time in the future, but only under certain conditions. Remember that you might be charged a fee, depending on the lender or the bank you have taken the loan from. This is called the conversion fee. This could be anywhere from 1% to 2% on the loan amount.

What Is The Best Option – Fixed Vs Floating Interest Rate

Comparing prices with lenders and keeping a lookout for previous market conditions is suggestible when deciding on which loan type to prefer. If you have a pretty good stable income and you are afraid of change, fixed-rate interests are suggestible for a shorter tenure of less than 4 -5 years. But if you have a loan for a longer tenure, you should consider your financing options because variable loans offer interest rates at lower margins.

However, the decision to choose between fixed vs floating interest rate will depend on your repayment capabilities of the loan. Considering that the variable interest rates have probability of lowering over time, these are the most preferred interest methods by the youth and adults alike. However, if you want a consistent EMI on your loan, fixed interest rates come with a greater EMI, however are stable across the tenure without you having to worry about paying more when the market conditions start to fluctuate.

You can apply for an auto loan at Blue Carz, compare prices with our competitors, discuss with our experts, and even convert at any given time if needed.

Summary: Fixed Vs Floating Interest Rate

The Bottom Line

It is up to you when decide among fixed vs floating interest rate on which option is better for your financial health. Although there are several telltales on the market that you can know about with a little research, it is always advisable to talk to an expert who can guide you through the process without you having to take extra time out of your busy day.

Experts at Blue Carz can help you decide on the best options at lower interest rates. We can also offer our customers a chance to waive off your added charges on part-payments, foreclosures, and foreclosures. You can even save money on your first EMI with zero processing fee.

Let us know your thoughts on our blog fixed vs floating interest rate, and leave us a comment below. If you are still unsure how, give us a call at Blue Carz and schedule a free consultation with our representative, who will take you through the entire process of availing of a loan with the best deals possible. Get discounts on your loan with our leading partners, HDFC, SBI, Kotak, Axis, ICICI, and more! Grab your benefits today.