Difference between fixed and variable interest rates on loans

[Phantasm]

Two widely known types of interest rates available on personal loans are fixed and variable interest rates. Here’s what you need to know about fixed and variable interest rates:

1. Fixed Interest Rate.

- Within the entire term, an individual receives a constant interest rate.

- This implies that your monthly payments and total paid towards interests remain unchanged.

- They offer a sense of stability and certainty since you would be aware of how much you are required to pay each month.

- These type of loans are good if you like stable budgets and don’t like surprises due to changes in the current market prices.

- One thing that should however be taken into consideration is that fixed interests could be more expensive than the variables at the beginning.

2. Variable Interest Rate

.During a specific period of time, it is possible for a variable interest rate to change its value.

- For example, floating rates are benchmarked against prevailing market indices such as prime rate or LIBOR( London Interbank Offered Rate).

- Your rate of interest can therefore go up or down together with your monthly installments whenever this reference point fluctuates..

- As such, payments could increase or reduce over terms when mortgage is payable..

- The advantage to borrowers here lies in the fact that floating rates usually fall below the common fixed rates initially..

- However, even though budgeting becomes tougher due to likely rises in cost, they still remain attractive because no one knows what future holds for us all.

 

[Suba]

There are several differences between fixed interest and variable interest, fixed interest is always the same amount every month or for each installment that must be paid until the debt ends or is paid off. While variable interest, the amount of interest that must be paid for each installment will always be different until the due date or the debt has been paid off. Variable interest rates will also always adjust to market interest rates, so that if interest rates rise, the installment amount plus interest will also increase and vice versa.

The fixed interest rate is determined before the loan is taken or approved, the fixed interest calculation is also very simple and easy. Meanwhile, variable interest calculations will always change because they have to adjust to market changes.