Which is Better - Personal Loan Fixed Interest Rate or Floating Interest Rate?


03 Oct 2021 | 5 min read

As the headline states itself, there are 2 options of Personal Loan Interest Rates viz. fixed and Floating Interest Rate. Even though, it confuses the borrowers always as it directly affects the amount of EMI payable and loan repayment term. 

To attain the maximum benefit of a Personal Loan, you must perceive the distinction between these 2 sorts of Personal Loan Interest Rate structures and how it affects the repayments. Therefore, let’s get deeper and know everything about these two terms so that you can eventually figure out which Interest Rate stands in your favour. 

Introduction to Personal Loan Floating Interest Rate 

In the Personal Loan Floating Interest Rate, the rate varies throughout the loan repayment term in accordance with the repo rate set by the Reserve Bank of India in their periodic revisions. 

The moneylender adds an additional Interest Rate to the repo rate and charges the Interest Rate from the borrowers. Any adaptation to the eventual Personal Loan Interest Rate is passed on to the borrower and is adapted with the existing rates of interest on the Personal Loan availed. 

Benefits of Floating Personal Loan Interest Rate 

  • If the market adapts in a specific way, the rates may get lower as contrasted with the Fixed Interest Rate structure. 
  • A drop in the Interest Rate leads to savings since in the EMI composition, the interest element gets lowered and the principal payment is boosted accordingly, which further lowers the future interest outlay. 
  • Drawbacks of Floating Personal Loan Interest Rate 
  • One of the notable drawbacks of the Floating Interest Rate is the unpredictability of the changes in rate. 
  • It gets harder to predict the future interest expenditure. 
  • In unfavourable industry’s circumstances, the rates of interest can uplift substantially, which can make budgeting tougher for the borrowers. 

Introduction to Personal Loan Fixed Interest Rate 

In the structure of the Personal Loan Fixed Interest Rate, irrespective of the change in repo rate by the RBI, the rate remains the same during the entire loan term. 

In this Interest Rate structure, the EMI composition which takes place combining the interest and the principal element remains constant across the loan tenor. 

Benefits of Personal Loan Fixed Interest Rate 

  • You get protection from the quick adaptation in the Personal Loan Interest Rates and it stands out to be safer to select from in this highly dynamic financial space. 
  • Since the interest element in the monthly instalment does not adapt across the loan term, it extends certainty on how much you are required to pay to settle the Personal Loan. 
  • It facilitates in planning effectual financial strategy since fixed payments support to budget properly and utilize your left financial resources to fulfil other goals effectually. 
  • Drawbacks of Personal Loan Fixed Interest Rate 
  • The Personal Loan Interest Rate in the fixed structure is usually higher by 1% to 2.5% as contrasted with loans availed with the floating rate of interest structure. 
  • You miss out on the advantages or odd to save on interest expenditures if there are any cuts in the Interest Rate segment. 

Which One is Best - Floating Rate or Fixed Rate? 

You should opt for the Floating Interest Rate or Fixed Interest Rate structure under the following conditions: 

  • Floating Interest Rate 
  • You perceive the financial market virtuously and under which circumstances, Interest Rate falls and uplifts. 
  • There are trustworthy indications that the rates of interest with fall in the future and remain constant throughout the loan term. 
  • If you notice a potential boost in your income and any elevation in the Interest Rates, it does not affect your other financial commitment. 
  • Fixed Interest Rate 
  • When you do not comprehend or have the market proficiency to anticipate how Interest Rate shifts, the risks are linked to adaptations in the Personal Loan Interest Rate, and would instead prioritize constancy.   
  • When you want to keep the EMIs fixed and is comfortable with paying the current interest amount. 
  • When you predict, a significant uplift in the Interest Rate thanks to unfavourable market circumstances. 
  • Thus, opting for the Interest Rate structure should be on the basis of your own knowledge, comfort extent, and the benefits that you’ll attain from opting for a certain Interest Rate structure. 

Just in case, you are still not sure which Personal Loan Interest Rate structure to opt for, you can take the help of the Afinoz Personal Loan EMI Calculator, and check the monthly instalment amount by entering varying interest rates and loan terms. 

It’s also suggested to seek a discussion with your moneylender to know more. 

The End Line 

To sum up, it’s all up to you to determine what Personal Loan Interest Rate fits your best interest. Ideally, you should compare Personal Loans for multiple factors and perceive each detail about it. 

Moreover, Afinoz offers competitive rates on Personal Loans, business loans, and home loans, making them one of the best alternatives in the market. You can apply for a Personal Loan or any other loan sort stated earlier simply via or Afinoz instant loan app

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