When in urgent requirement of money, Personal Loans are the most viable financing option to explore. Personal Loans are unsecured, and you can get them at a competitive interest rate. You can apply for a significant amount and a flexible tenure ranging anywhere between 12 to 60 months. This indicates that the financing option is simple and affordable. Personal Loans are very useful in emergencies.
It has no end-use associated with it. You can use the Loan amount to meet any financial requirement, be it financing a medical emergency, funding a house renovation project, or planning a long overdue family vacation. You can apply for Personal Loan offline or online. On approval, the Loan amount is disbursed in no time. Interest rates applicable are the primary consideration of every applicant.
However, most of them miss out on checking the interest rate type applicable to the Loan request. Being aware of the interest rates applicable is necessary as it makes a great difference to the Loan repayment.
Types of Personal Loan interest rates
Personal Loan interest rates are mainly of two types: fixed and floating interest rates.
- Fixed interest rates
These remain fixed throughout the tenure. For instance, you apply for a Loan at 10% for a tenure of two years. This rate remains fixed for the said duration. Fixed Personal Loan interest rates are typically marked higher than floating interest rates. Note, since the interest rate remains fixed, the equated monthly instalments payable remain fixed. This simplifies the Loan repayment calculations.
- Floating interest rates
They are also called variable interest rate and it changes from time to time. The interest rate does not remain the same through the repayment tenure. Floating interest rates are typically linked to RBI’s repo rate. A hike in it translates to an increase in floating interest rates and vice-versa. Since the interest rates change often, so does the EMI payable. At times, this could result in a higher interest liability for you.
Fixed vs floating interest rates: Which is better?
There is no direct answer to which of the two Personal Loan interest rates is better. However, if you want to follow a fixed repayment schedule and take no risk, consider opting for fixed interest rates. If you wish to benefit from the RBI’s changing repo rate, then opting for floating rates is ideal. Typically, a fixed rate is better when the RBI’s interest rate regime is rising, while a floating rate works if the RBI’s interest rate regime drops.
Author bio
Neha Sharma, a finance student, loves to write in her free time. She has spent a considerable time researching on Personal Loan interest rates. Through her work, she explains the interest rate types