Difference between fixed rates vs. floating interest rates of the banks:
While opting for the loans, the borrower can opt for two different types of interest rates, i.e., Floating interest rates and the fixed interest rates. The borrower should opt for the loans from a minimum of five years up to a moratorium of 30 years to keep the installment running. The duration of the loan depends upon the age of the borrower. Based on the borrower’s retirement age, the age limit is decided by the applicant until the applicant can opt for the loans. To make the property in the own individual’s name, the borrower should repay the principal amount and the interest amount to the borrower to make the property on own name. The loans can be paid for a longer term with lower monthly installments if the applicant is young, and thus there are long years of service being pending with the individual.
The fixed interest rates are the ones wherein the interest rates remain blocked once the lender is approving the loan. No further changes can be made in the banks’ interest rates once an individual processes the loan. Simultaneously, the floating interest rates keep on varying based on the repo rate fixed by the RBI[reserve bank of India], which keeps on changing. When the repo rate increases, the fixed deposit interest rates increase while the lending rates decrease. If the repo rate gets reduced, then the fixed deposit rates decline, and the lending rates also fall. The borrower is always given a free choice to decide whether he/she needs to opt for the floating interest rates or the bank’s fixed interest rates.
About the fixed interest rates of the bank:
When the borrower opts for the loans, the fixed rates are when the interest rates to be charged by the lender remain fixed. Irrespective of the market conditions, the borrower is charged with the fixed interest rates on the loans, which the borrower is liable to pay to the bank for opting for the credit facilities. For example: If the borrower is being charged with the interest rates of 8.50% cumulative interest rates, then whether the later stage depending on the market conditions the interest rates go to 9.00% or lower to 8.00%, the borrower continues to pay the same interest rates of 8.50%. While opting for the fixed interest rates, the borrower is already charged with the higher interest rates on a point percentage basis, thus keeping a cushion on the fluctuation of the banks’ interest rates. The borrower should maintain a sufficient bank balance to account to repay the loans even in case of ups & downs in the markets.
About the floating interest rates of the bank:
The floating interest rates are the ones wherein the interest rates being charged to an individual are fluctuating. Thus it may vary according to the market conditions as per the Reserve bank of India’s repo rate, which is constantly fluctuating. As per the current trends, the banks’ repo rate is continuously declining, thus leading to the correction in fixed deposit interest rates and the interest rates being charged on the loans to the borrower. The floating interest rates are never stable; thus, as per the current prevailing market conditions, the customer is always bound to benefit from the bank’s falling interest credit rates being charged to the borrower.
Recommendation on the choice of the customer whether to opt for fixed or floating interest rates:
It is always better recommended that the borrower should opt for the loans on floating interest rates only. As per the current market trends, the interest rates of the banks are continuously falling. Thus it is always recommended that the borrower opts for the floating interest rates so that when the interest rates being charged fall down due to the fall of the repo rate, the customer can save enormous money on the interest repayment. Also, when there is lower liability being applicable to be paid by the borrower, then the customer can do a huge amount of savings in case of loan repayment. The interest is charged on the fixed interest rates is also higher as compared to the floating interest rates being charged to the borrower.
Hence, it is always recommended that the borrower opts for floating interest rates on the loans. The bank’s interest rates are continuously falling, thus providing benefit to the customers in case of the loans’ interest repayment. The floating interest rates are cheaper to opt for, and due to falling interest rates, the borrower can save a massive sum of the amount as interest rates.