What Are Fixed Interest Rate & Floating Interest Rate?

Fixed Interest Rate & Floating Interest Rate

When it comes to interest rates for loans, borrowers should know that there are two types of interest rates: a fixed interest rate or floating interest rate.

What is the difference between fixed and floating interest rates?

A fixed interest rate is the kind of interest rate that remains constant for the entire term of the loan; a cash loan with a fixed interest rate is intriguing for borrowers who seek steady interest rates to avoid any increment of their interest expenses.

A floating interesting rate, on the contrary, fluctuates depending on interest rates on the market. To simply put, it doesn’t remain the same for the duration of the loan’s term.

Fixed interest rate or floating interest rate loan?

It depends on your choices because each has its own values. If you live in a region that there are market fluctuations, then having a fixed interest rate loan does you a favor, given that you know how much to pay in interest and how to manage your interest payments well. On the other hand, having a floating interest rate loan in a decreasing interest rate environment where interest rates may float down, chances are you’ll be subjected to pay for your mortgage payments at a lower cost.

These two interest rates somehow can be utilized to consolidate debts and loans such as term loans, credit card bills, mortgages, and other types of payments. At the end of the day, choosing the type of interest rate loan is your personal decision to pick what best suits your needs. If you like to plan ahead for your finances in a long term, a fixed rate interest loan would give you a clear plan in mind about how much to pay in total for each month and prevent you from market fluctuations.

However, it can come with a higher price that remains the same over the duration of your loan’s term. Therefore, before making a firm decision, you are recommended to go to different financial institutions to rest assured that you can pick the one that benefits you the most.

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