Fixed Rate vs. Floating Rate EMI Loans

What is the difference between Fixed Rate and Floating Rate of Interest EMI Loans? Fixed Rate vs. Floating Rate EMI Loans. Is there any Calculator for the purpose of Fixed and Floating Rate EMI Loans?


Fixed Rate of Interest EMI Loans: For Fixed Rate of Interest EMI Loans the EMI or Installments amount will remain fixed or unchanged until total loan is repaid, it may look strange that EMI (Equated Monthly Installment) implies the Installments amount stay unchanged till the end of total repayment of loan, then why I have mentioned “EMI or Installments amount will remain fixed or unchanged until total repayment of loan”, it's so that under floating rate EMI loans the EMI amount will not be constantly same, it mean that installments or EMI amount change frequently due to changes in the interest rates under floating rate scheme, we can say that the EMI or installments will remain unchanged until the rate of interest change under floating rate of EMI loans.

Advantages of Fixed Rate EMI Loans:
  • Borrower will be benefited if the market interest rates kept high for long period of time after he borrow loan.
  • EMI amount will stay unchanged or constant even if the market interest rates touche high.
  • Clear cut repayment plan, it mean that he can plan for future not considering the effect of interest rate fluctuation.
  • Need not have to be get noticed for change in the amount of installment.
  • Borrower can switch to Floating rate at any time he need with out any charges for switching but have a clear information whether any switching charges are applicable with the money lender where you have borrowed loan.
Disadvantages of Fixed Rate EMI Loans:
  • Fixed rate EMI loans are charged with high percentage of interest rate than floating rate, it may be 1 to 2% higher.
  • Borrower will be in loss if the market interest rates stay low for a long period of time than the rate of interest he borrowed.
Floating Rate of Interest EMI Loans: Under floating rate of interest the rate of interest change frequently,  as explained above floating rate of interest vary the EMI or installment frequently due to changes in the interest rates.  But still even the interest rates change frequently, the borrower can have the facility of maintaining the EMI or installments fixed or unchanged till total loan amount is repaid or till some extend by using ' Multipurpose EMI Calculator or 3 Types of EMI Calculator', which is designed by this blog, you can do this with the consent of money lender cum by using this calculator cum little bit of planning of yours which I will help how to plan.  For this the software download link is:


The explanation for how to use this calculator for the purpose of maintaining fixed or unchanged EMI under floating rate of interest EMI Loans is explained under heading “How to Maintain a Fixed or unchanged EMI or Installment under Floating Rate of EMI Loan” see below.

Advantages of Floating Rate of Interest EMI Loans:
  • Floating rate EMI loans can be obtained at less rate of interest than the fixed rate EMI Loans, it may be 1 to 2% less.
  • Borrower will have the benefit of switch to fixed rate interest scheme at the time when interest rates are low but there are also hurdles with this like under this type of switch from Floating Rate to Fixed Rate may result loss to money lender, so money lender have his own plans of safeguard by imposing switching charges for switching to alternate scheme and Fixed Rate EMI Loans are charged at a high Rate of Interest than Floating Rate of EMI Loans it's up to 2% higher.
  • If in the middle the borrower want to have another loan then he can merge past loan with the new loan amount easily.
Disadvantages of Floating Rate of Interest EMI Loans:
  • Borrower will be in loss if the interest rates be at high for a long period of time until total loan is repaid.
  • You can only have advantage of maintaining a fixed or unchanged EMI until total Loan is repaid by choosing less tenure plan.
  • Budgeting borrower future financial plan may little bit effected.
  • Do have worry of fluctuations in the interest rates. 
  • Frequently the EMI or Installment amount change or tenure increases or decreases due to interest rate fluctuation.
Distinguish between Fixed and Floating Rate of Interest EMI loans or Fixed Rate vs. Floating Rate Home Loans


Floating Rate EMI Loans
Fixed Rate EMI Loans
1
Most of the borrowers are choosing floating rate Home Loan
Very Less no. of borrowers are choosing Fixed rate Home Loan
2
Floating rate loans are only gainful if loan is obtained when market Interest rates are high.
Fixed rate loans are only gainful if loan is obtained when market interest rates are low.
3
Switching from floating to fixed rate make gain when interest rates are low but this is not allowed by some money lending companies, and the allowing lending companies will charge 1.5% to 2% plus applicable service tax as switching charges on your outstanding loan amount.
Borrower can switch from fixed to floating rate at any time and this type of switching is mostly encouraged by lender.
4
In one point of view borrower should not have worry of fluctuation because he is charged at market rates.
Borrower will have worry when the market rates are totally or most of the period of loan tenure touching low rate than the rate at which he took loan.
5
Budgeting  for future may be little bit effective because of fluctuations in Interest Rates
Budgeting for future is easy because fluctuations in interest rates are not effecting the EMI.
6
Rate of interest is lower than fixed rate EMI loans, it is up to 2%
Rate of interest is higher than the floating rate EMI loans, it is up to 2%
7
EMI may not be fixed until total repayment of loan (How to maintain a fixed or unchanged EMI under floating rate see below topic:  How to Maintain a Fixed or Unchanged EMI or Installment under Floating Rate of EMI Loan)
EMI will be fixed or Unchanged until total repayment of loan
8
Rate of Interest change frequently.
Rate of interest do not change.
9
Floating rate of loans are mostly only for Home loans.
Fixed rate of loans are given for all types of loans like Vehicle loans, Home loans etc.

Calculator for Fixed Rate EMI Loans: 

You can get number of free EMI Calculators for fixed rate of interest EMI Loans through Google search which are all the same, but this blog is special which helps you to get to a conclusion 'at one try' for selecting an suitable amount of EMI for the required amount of loan by providing a calculator called “ Multipurpose or 3 Types of  EMI Calculator”, this consist of 3 types of EMI calculators, in this one calculator is same as which all other blogs or websites or money lender websites are providing and other 2 are newly found out formulas for making EMI planning quick, by using this new formula the software is developed and this type of EMI calculator do not exist with even like big International financing companies.  The Download link is:


Click on these below links for how to use this calculator for Fixed Rate of Interest EMI Loans


Calculator for Floating Rate of Interest EMI Loans:  

This blog is providing a specially designed EMI calculator for the purpose of Floating Rate of Interest EMI Loans which other websites  could not provide because it is newly found out by this blog.  If you download EMI calculator from any other websites you will get EMI calculator of only one type but this is a blog which provides 3 types of EMI Calculators which contains 1 type same as the others are providing with additional 2 types, this new features help in any type of EMI calculation purposes like

1.      Floating Rate EMI loans
2.    Accelerate repayment of EMI Loan
3.     Lump sum EMI loan repayment
4.    Reverse EMI calculation? Example: EMI, Principal, Rate are known.   Need to find the tenure.
5.     Fixed Rate EMI loans etc.

How to use this calculator for the purpose of Floating rate EMI Loans?

Before I explain how to use this calculator for floating rate EMI Loans, first I say that there is no special EMI calculator for the purpose of floating rate EMI Loans but why I have mentioned that this calculator can be used for Floating rate of EMI loans because the reason is under floating rate of interest the interest rates may rise in the middle of the loan repayment period which may result EMI amount to increase due to the EMI amount cannot be sufficient even to meet interest for the month, in this situation lender will increase the EMI in the middle when the rate of interest rise to over come this problem, Multipurpose EMI Calculator or 3 Types of EMI Calculator helps to find out suitable amount of EMI in such a way that there is no need to increase EMI in the middle of  repayment period or until total loan amount is repaid.

How to Maintain a Fixed EMI or Installments under Floating Rate of Interest EMI Loan:

This is done if you choose a less tenure EMI Loan but exactly how much tenure borrower need to select to have a fixed EMI under floating rate EMI Loan is explained below by taking a example:

For example the loan requirement is 2000000 the rate of interest present is 10% and if the all time highest record or past 10 years highest record of rate of interest is 16% (you can have your own expected rate of interest which you may feel to raise maximum in middle of Loan repayment period) then what tenure to choose to have fixed EMI under floating rate is explained in steps with screenshots:

First Download 3 Types of EMI Calculator or Multipurpose EMI Calculator from this link:


Step 1: Open the downloaded EMI calculator (MS Excel Format)

Step 2: Click on work sheet named “EMI Calculator” which is default

Step 3: Select purpose “Home Loan Floating Rate” from the drop down list of Combo Box where you have 12 purposes.



Step 4: Now fill all inputs cells which are asked

a.      Fill the input cell “Principal”: Enter the amount of principal/Loan required(here i am taking 2000000 as per above example)
b.     Fill the input cell “Rate of Interest P/A”: Enter the present Rate of Interest per annum(here i am taking 10% as per above example)
c.      Fill the input cell “Rate (Past 10 Years Highest)”: Enter the Rate of Interest past 10 years highest or your prediction of Interest Rate touching highest in the middle of Loan repayment period(here i am taking 16% as per above example)

Step 5: Be sure that no Mistakes are displayed beside Input cells; Output will be displayed only when all mistakes are cleared


Step 6: Here we get the answer in the Output cells (See screenshot below)
While taking loan the borrower should keep in mind that the  EMI should not be lesser than 26826.30765 or Tenure should not be greater than 117 months (EMI amount and Tenure is taken from output - 1, see screenshot below) this EMI and Tenure is for the principal of 20,00,000 and the rate of interest is 10% P/A., by this way borrower can maintain a fixed or unchanged EMI until the total loan amount is repaid even if the rate of interest touche more than past 10 years highest in the middle, the tenure of loan may increase(1% chance) but would not have a need to increase EMI amount and at the last month the borrower will have to pay EMI amount which is less amount than the past months as a final settlement.


Step 7: Other stuff relating to the output is explained below:
1.      Description: This will explain about the output like
a.      How it is calculated
b.     What it consist of etc.
2.    Statement: Multipurpose EMI Calculator displays statement of the Output
3.     Total Interest: Total Interest included in the amount of all Installments.







Author:  B. Naveen Chandra Gupta
                bnaveenchandragupta@gmail.com
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