Floating Interest versus Fixed Interest for Personal Loan

A personal loan is an ideal way to ensure that your financial problems are instantly met. However there are certain parameters which are considered when you consider the loan. This includes the tenure, amount and especially the personal loan interest rate. In this article, we give you the advantages and disadvantages of floating interest rates and fixed interest rates.

Market Conditions
The market conditions play an important role in impacting the personal loan interest rate, as it forms the base rate for any interest rate. For the fixed interest rate, the base percentage rate is fixed throughout the period of tenure without any fluctuating changes. However, for the floating rate, the changing market conditions impact it the most. Based on the current and future market changing scenario, the rates are planned for the floating interest. Therefore, for the first few months the rates will be higher and then proceed to be lower or vice versa, which may enable to pay more you should.

Stability
A personal loan is fixed for a period of certain tenure that can last anywhere between a year to more. A platform of stability is created if you are well prepared with the loan you would like to take, along with the tenure and the personal loan interest rate. While the fixed interest rate will provide you with a secured tenure a floating rate may not provide the same level of stability. The unpredictability of the changing market rates makes the floating rates more unstable depending on your income and other selected factors.

Percentage of Rate
The personal loan interest rate is different form the fixed rates and the floating rates. While the floating rate is lower than the fixed interest rate, it helps you save during the tenure of the period, as it may rise only a percent or two percent more in the latter half of the tenure. However, with the fixed interest rates you will have a steady interest rate throughout the tenure and thereby spending more than you should when you can save.

Tenure
The length of the tenure plays an important role in the interest rates for personal loan. If you choose a fixed interest rate for a certain period, you will have to pay a steady fixed amount for that whole tenure. However, with a floating interest rate, you can adjust to pay a higher interest in the former months with a lower amount in the latter months, or even vice versa. In this way, you can reduce at least 6 months as compared to the fixed interest rate tenure. Thereby if you take a personal loan which has a long tenure over 15 years, you can reduce it with a floating interest rate.