Planning to apply for an unsecured personal loan online in Bengaluru for your financial needs? You need to also decide on the type of interest rate. Should you go for a fixed interest rate or a variable interest rate for repaying your personal loan?

The answer depends on a lot of factors which we will be covering here:

What is a fixed interest rate?

The fixed-rate when you apply for a personal loan online in Bengaluru is the interest rate that stays fixed for the entire repayment period of the loan. Irrespective of the fluctuations in market interest rates, the fixed interest rate remains the same throughout.

What is a variable interest rate?

A variable or floating interest rate, on the other hand, can change throughout your loan period as the market interest rate changes. After installation is paid, you may have to repay the balance based on the current prevailing market interest rate.

When should I choose a fixed interest rate for a personal loan?

There are specific circumstances where a fixed interest rate is more viable than variable interest rates. You should choose a fixed rate when:

• It’s a long-term loan.

Fixed rates are feasible for long-term loans like home, education, or car loans that are repaid over 5 years. As borrowers can’t predict interest rates over a long period of time, it’s safer to go with a fixed interest rate to avoid paying a higher interest rate in the future.

• You have a fixed income.

Borrowers with a fixed income who cannot handle the sudden instability in the interest rate should choose fixed interest rates. Variable interest rates are subject to high risk, which may not be suitable for risk-averse borrowers.

• Market interest rates are at their all-time low.

There should be no doubt about choosing fixed interest rates when the current interest rates are historically low. Even when interest rates are subject to fluctuations, it is advisable to lock in the interest rate when it hits its all-time low.

When should I choose a variable interest rate for a personal loan?

Certain circumstances under which a variable interest rate should be chosen include:

1. It’s a short-term loan.

Short-term loans can benefit from flexible interest rates as there is less risk involved with severe interest rate fluctuations.

2. When interest rates are predicted to fall

Variable interest rates are also beneficial when you can read the changes in interest rates well. If the interest rates are predicted to follow a downward trend, a variable-interest loan will help you take advantage of the situation and repay the loan with lower interest costs.

3. High-risk tolerance

Borrowers with high-risk tolerance and strong financial stability can also choose variable-interest loan rates.

4. Paying off the loan early

Choosing variable interest rates also benefits borrowers by allowing them to repay the loan on time without any penalties. Such loans come with more flexible foreclosure and prepayment terms.

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