When applying for the personal loan, People have high chance to over look a lot of things like the interest rate and processing fees as we are more concerned about availing the low EMI loans. We should see affordability of the EMI but could not afford to oversee the Interest rate of the loan, because interest rates play the crucial role in accessing your final EMI. For personal loan applicants, there are two types’ rates of interest Fixed Rate and Floating Rate, which have a quite different impact on EMI. Let’s first understand the basic difference between the fixed and the floating rate of interest.
What is Fixed Rate of Interest?
Fixed Interest Rates is said to be the interest rate which is fixed for the entire loan tenure. So, any personal loan for a tenure of 3 years, can be assured that the interest rate will remain fixed for the entire loan tenure. When we have planned for our future brings in the right advantage.
What is Floating Rate of Interest?
Floating Interest Rates actually means that the interest rate that can change during the loan tenure due to financial circumstances of the country. If opted for a Personal Loan with a floating rate of interest, then have to be prepared for the interest rate changes during the loan tenure.
Advantages of Fixed and Floating Interest Rate of Personal Loan:
| FIXED INTEREST RATE | FLOATING INTEREST RATE |
| The repayments remain the constant throughout the tenure of the loan, so we can plan the financial life with ease. | The starting rate of the Floating Interest rate is usually lower compared to Fixed Interest Rates. |
| In the times of low interest rates, fixing the loan can be an advantage since we can retain a low interest rate, just. This can potentially lower the repayments and the entire interest paid in the long term, depending on the bank. | Loans with lower interest rates has lower EMI. Which helps the loan borrowers to save money out of their income. Doing this can in turn favor the loan borrowers, who intend to save money? While, completing the tenure of personal loan. |
| It is comparatively easy to calculate the cash transfers between the borrower and the bank where they are fully aware of the process. | It brings people with an option that individuals can earn according to the market conditions. |
The disadvantages of Fixed and Floating Interest Rate of Personal Loan:
| FIXED INTEREST RATE | FLOATING INTEREST RATE |
| The Interest rate at the starting of the loan gets usually higher compared to that of Floating Interest Rate. | The interest rate could increase make the overall rate of the personal loan expensive. |
| For any reason, if the interest rate reduces due to change in business or market conditions, the personal loan do not the benefit from reduced interest rates and we might end up repaying almost the same amount. | The monthly installments get a little non uniform because of constant change in the market conditions. |
Who Can Apply for a Personal Loan?
The banker set an eligibility criteria for individuals who wish to apply for a personal loan. Some of the criteria include:
Documents Required to Apply for a Personal Loan:
It is always crucial to make a decision of which kind of interest rate, we have to go ahead with before signing the dotted line as you will not get the chance to changing it later on. Both Floating and Fixed Rate of Interest have their own advantages and cons. It is always advised to study both the interest rates, solve all your questions and then go the decision.
