Fixed Rate Personal Loans: Why could they be the future of borrowing? 4 key reasons | Mint

While fixed rate personal loans, which were supposed to be exceptions to the prevailing variable-rate lending norms, gained in popularity even, this piece probes the implications to the lenders themselves, whether that shift spells potential permanence as an economy emerges with its set of interest-lowness conditions. Here we will examine how landscape personal loans quietly shift during such historically low times for interest.

What are personal loans?

Unsecured personal loans offer customers a lump sum for various expenses. Personal loans are issued based on the creditworthiness of the borrower, unlike secured loans that require collateral. They are a flexible option for debt consolidation, home improvement, or other unexpected medical bills because they typically have defined payback terms and interest rates.

What are fixed rate personal loans?

The interest rate on fixed-rate personal loans is fixed for the term of the loan. This stability ensures that, regardless of what changes occur in market interest rates, the borrower’s monthly payments will always be the same. Such predictability is helpful because it eliminates the prospect of unexpected increases in expense and allows borrowers to plan their finances without doubts.

Disadvantages of fixed interest rates

• Higher rates: High initial interest rates compared to variable interest loans, thereby bigger first payments in fixed rate loans.
• Low flexibility: As the RBI slashes interest rates, variable-rate loan borrowers would stand to enjoy lesser EMIs. For fixed rate loans, this cannot be applied as they are not eligible for this benefit.

Why fixed-rate loans shine in low-interest times

When interest rates are low, fixed rate personal loans are thought to be good because they anchor the interest rate for the length of the loan. This may mean that a person’s interest rate and thus their monthly repayments are relatively stable despite how the interest rates of the overall economy change over time.

In conclusion, in an economy of low interest rates, both lenders and borrowers are able to save much from personal loans that come with fixed rates. Their predictability and stability allow for better financial planning, shielding the borrower from increased rates. Such personal loans become increasingly popular promising a safe and stress-free borrowing experience as long as interest rates stay low.

(Note: Raising a loan comes with its own risks. So, due caution is advised)