Fixed Rate vs. Floating Rate EMI Loans

Chapter 2

Fixed Rate vs. Floating Rate EMI Loans





2.0 Fixed Rate vs. Floating Rate EMI Loans: 
For knowing different between Fixed Rate and Floating Rate EMI Loans it’s better to have knowledge about what is fixed and floating rate EMI Loans Separately then after difference between the two.

2.1.1 Fixed Rate of Interest EMI Loans:

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


2.1.2 Advantages of Fixed Rate EMI Loans:

  • Borrower will be benefited if the market interest rates kept high for long period of time after he borrows loan.
  • EMI will stay unchanged or constant even if the market interest rates touch high.
  • Clear cut repayment plan, it means that he can plan for future not considering the effect of interest rate fluctuation.
  • Need not have to be getting noticed for change in the amount of installment.
  • Borrower can switch to Floating rate at any time he need without any charges for switching but have a clear knowledge whether any switching charges are applicable with the money lender where you have borrowed loan.
2.1.3 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.
For how to use 3 Types of EMI Calculators for Fixed Rate of EMI Loans read the below Chapter


2.2.1 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 '3 Types of EMI Calculator', which is designed by this website, 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.  

The explanation for how to use this calculator for the purpose of maintaining fixed or unchanged EMI under floating rate of interest is explained in Chapter

How to maintain Fixed EMI under Floating Rate of Interest EMI Loans”.
   
2.2.2 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 wants to have another loan he can merge past loan with the new loan amount easily.
2.2.3 Disadvantages of Floating Rate of Interest EMI Loans:
  • Borrower will be in loss if the interest rates be at high for a long percentage 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 his 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.

2.3.1 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 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 affecting 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 will 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.


How to maintain Fixed EMI under Floating Rate of Interest EMI Loans?