It is no secret that before applying for a personal loan, gaining knowledge about optimal interest rates is of utmost importance.

While several people know what interest rates are, some are oblivious to the fact that there are two broad categories that exist: fixed and floating. It is vital to learn about these so that you make a well-informed decision on choosing the right loan. Thus, it’s time to look at fixed vs floating interest rate and see how they differ.

Getting the basics right

Before understanding the difference between fixed and floating interest rates for personal loans, let’s cover the essentials.

Fixed interest rates are when a lender charges a constant rate throughout the loan duration, hence the accrual interest doesn’t change.

On the other hand, floating interest rates, also called variable rates, are when a lender can make periodic revisions according to the repo rate changes, as per the RBI’s benchmark.

The benefits

  • A fixed interest rate remains unchanged throughout your loan’s duration. Whereas, floating interest has a lower starting rate, and helps to begin the loan tenure with favourable EMIs.
  • Fixed rates remain unaffected by market scenarios; hence you can rest assured about avoiding unpredictable rate fluctuations. However, the same lender often offers lower floating interest rates, approximately 1% to 2.5% lower than fixed ones.
  • While you can plan your EMIs better with fixed rates, there are chances that the personal loan interest rate may dip lower during the tenure, with a floating one.

Additional Read: Why Have Personal Loan Interest Rates Dropped So Low?

When to avail fixed interest rates?

  • If you don’t want your interest rate to be associated with market trend changes and lending rates, it’s best to stick with fixed rates.
  • If you want to adhere to the initially evaluated EMIs and repayment liabilities and don’t want any changes in your repayment plan, this is the best option.
  • If you foresee that interest rates will soon rise which will increase your EMIs, then this is your go-to.

When to avail floating interest rates?

  • If you can perceive repo cut trends, then floating rates is your best solution, as you’ll be able to keep repayment liabilities in check while interest accrual decreases.
  • If you see a potential income increase, this is a great option. Through this, you can prepay loan liabilities and thus, significantly save on prepayment fees and the total repayment amount. 
  • If you aren’t well-versed with market trends and want to stick to its rates, then floating interest is your go-to.

Additional Read: What is the difference between a Fixed and a Floating Interest Loan?

The clear winner?

Selecting the right one will ultimately narrow down to your requirements and preferences. However, now that you have a clear idea about both, you can choose the right one while applying for your personal loan.

Looking for a credible vendor to avail personal finance from? Head to Tata Capital – one of India’s most trusted lending institutions. Not only do we offer some of the most competitive interest rates in the country, we also extend a relatively more relaxed personal loan eligibility criteria.

Further, we require minimal paperwork and are always open to negotiating flexible repayment terms for personal loan for self-employed as well as salaried individuals. 

So, what are you waiting for? Apply today!

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