Interest rate is one of the most crucial aspects when taking a home or personal loan. The interest rate decides the EMI that you need to pay every month. However, there are generally two different kinds of home loans or personal loan interest rates. One is fixed, and another is the variable interest rate. Both have their benefits and downsides.

Not every bank or financial institution will provide you with a fixed interest rate, nor every institution will provide a variable one. You can understand the pros and cons and decide how both will impact your EMI. You can estimate the payable amount with the personal loan EMI calculator, which gives you a precise number. 

Is Having a Fixed Interest Rate Good for You?

When a loan has a fixed interest rate, it means that whatever home loan or personal loan interest rate has been decided in the beginning will continue for the tenure of the loan. The rate will not fluctuate with the changes caused in the market. 

Benefits of a Fixed Rate of Loan

Like everything, the fixed interest rate for your loan has some benefits and pros. A fixed interest rate is better if you are a first-time home buyer. With a fixed personal loan interest rate, you know the fixed amount you must pay monthly. Such an amount is discovered from the personal loan EMI calculator. 

You can also easily budget your finances when you have a strict payment schedule according to your fixed rate. Thus, you have the peace of mind that you will not be surprised by any sudden rise in interest rates during the entire loan term. 

Downsides of a Fixed Interest Rate

Fixed interest rates also have downsides that might be troublesome later in your loan period. One of them is that you might not access extra features such as making extra repayments to pay off your loan faster or even redraw. Even if you have the stability of knowing your repayment sum from the personal loan EMI calculator, it also means that if the market interest rate falls in the future, you will still be paying the high rate of interest that you agreed with in the beginning.

And if you do refinance your loan with the benefit of a drop in interest rate, you may be required to pay exit or break fees. If you want the option of refinancing or making extra repayments, then it is better not to go with the fixed payment rate.

What Does it Mean to Have a Variable Interest Rate for Home Loan?

A variable home loan or personal loan interest rate is a long where the interest rate can change depending on market fluctuation. If you have decades of the loan period, your rate can change according to the Reserve Bank of India guidelines, or even if your bank wants to readjust your rate. 

Pros of a Variable Interest Rate

There are benefits to variable interest rates. One is that you get a wider variety of features, such as offset and redraw accounts. You can also benefit from the drop in interest rates. A drop in the rate means that your repayment amount also reduces. 

With variable interest rates, you can also make extra repayments. It means that you get to pay off your loan sooner, and that will decrease your interest payments. However, you will constantly have to use the personal loan EMI calculator to assess the amount you must pay. 

With a variable loan, you can refinance with a better competitive rate by avoiding high break or exit fees. If these are the things you require, then using a variable interest rate is always better. 

Cons of a Variable Interest Rate

There are many great features with variable interest rates but also some cons. Just like the interest rate can reduce with market fluctuations, it can also increase. And with the rise in interest rate, you may need help to repay your loan. It could make it challenging to budget and put you under financial restrain. 

Conclusion

Before you apply for a loan, it is necessary to check and compare the interest rates. If required, you need to inquire with the bank or financial institution about the kind of interest rates they are providing. Upon discovering whether it will be a fixed or a variable interest rate, you can decide whether it aligns with your needs and requirements.