Fixed Interest Rate: Definition, Advantages & Disadvantages Explained

The growth of the financial sector in a country plays a vital role in shaping the well-being of an individual, the market and society itself, which is comprised of a nation. Financial growth strengthens a nation’s economy. Depending on whether it is growth or decline, it directly affects the instruments, products and tools offered by financial institutions. These tools and instruments are personal loans, auto loans, gold loans, stocks, and bonds and are not limited to themselves. This is exactly where the role of Non-Banking Financial Companies (NBFCs) comes into action, by offering easy access to financial services. For instance, by facilitating investments and helping individuals access funds for specific purposes. NBFCs' ability to withstand the tremor during economic uncertainties makes them an ideal substitute for banks. NBFCs offer personal loans at competitive interest rates. The charges on loan repayment depend on the personal loan interest rate provided to you, as well as the duration of your loan period. Among the different types of interest rates, fixed interest rates are the most widely considered. Let’s see why?

Table of Content

What is a Fixed Interest Rate?
How to calculate the cost of a fixed interest rate?
Advantages of Fixed Interest Rates
Disadvantages of Fixed Interest Rates

What is a Fixed Interest Rate?

Fixed interest rates are literally what the names suggest. They are easy to understand and calculate, making them the most common type in personal loans. Fixed interest rates provide you with clarity on the monthly interest charges and principal amount that you will be paying throughout your loan term. Allowing you to predict the loan amount is one of the most significant features of a fixed interest rate. This, in accordance with the monthly stable interest charges, gives you an upper hand in planning your monthly expenses so that you can manage your finances better by making sound and well-informed decisions.

How to calculate the cost of a fixed interest rate?

To calculate the cost of a fixed interest rate, you must know the loan amount, interest rate and the tenure or repayment period of the loan. Then you need to check our personal loan EMI calculator and putting in the variables i.e. the loan amount, interest rate and tenure. The amount that you get from the calculation is your EMI. An important point that you must remember is that the rate of interest and EMI as shown on the website while using the EMI calculator is based on the base rate and the applicant’s eligibility. This is subject to change on a real-time basis in accordance with Muthoot Finance policy.

Advantages of Fixed Interest Rates

Depending on the type of interest rates, each has its own set of pros and cons. Let’s look at the advantages of fixed interest rates.

Certain and Predictable – Fixed interest rates remain constant throughout the loan tenure. This means that the amount or cost of interest that you initially predict and calculate while availing the loan will remain unchanged. Due to this certainty, personal loans with fixed interest rates are getting popular among borrowers of all classes.
Ease of Planning in the Long-term – The cost of fixed interest rates that remain unchanged throughout the loan duration gives borrowers the opportunity to predict their expenses, ultimately giving them the upper hand to manage and plan their budget accordingly.
Ensures Safety – A certain degree of predictability with fixed interest rate offers a sense of safety. This means that borrowers can always count on fixed rates for safety. However, variable rates are associated with a bit of uncertainty, no matter how attractive the initial rates are.

Disadvantages of Fixed Interest Rates

Depending on the interest rate and the environment that it creates, there are certain disadvantages of fixed interest rates.

Flexibility is Limited – In case the interest rates are high while availing the loan, then you are caught up with the high cost throughout the loan tenure, with no flexibility.
Higher Interest Rates – It is possible for a loan with fixed interest rates to have a higher rate of interest than that of a variable interest rate, where the rates keep pace with its benchmark.
Loan Refinance – Refinancing a loan from fixed interest rates is another major drawback, as it can be time-consuming, and the overall costs can be significantly higher.

Applying for a personal loan online has been made quick and easy with the intervention of NBFCs like Muthoot Finance. In a market that is so fragmented, the personal loan interest rate offered by Muthoot Finance can be customised to suit your individual requirements.