Why Choose a Fixed Interest Rate Personal Loan? Key Benefits Explained

Key Takeaways

Fixed interest rate personal loans offer consistent EMI payments throughout the loan tenure, providing borrowers with a sense of financial stability and ease of budgeting.
With fixed EMIs, borrowers can plan their finances more effectively, avoiding the stress of fluctuating payments, especially in times of high inflation.
With IDFC FIRST Bank’s FIRSTmoney offering a fixed interest rate on a monthly reducing interest calculation, the interest is calculated on the outstanding principal balance at the end of every month.

24 Dec 2024 by IDFC FIRST Bank

Benefits of choosing a fixed interest rate personal loan

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If you are looking to apply for a personal loan, it is first essential to understand the difference between a fixed and floating personal loan interest rate. With a fixed interest rate personal loan, the interest on your loan is fixed which leads to a stable and predictable repayment structure. With a floating interest rate loan, the interest rate can change based on market fluctuations. Read on to explore the benefits of choosing a personal loan with a fixed interest rate over a floating rate.

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What are fixed and floating interest rates on personal loans?

You can either choose a fixed interest rate personal loan or one that charges a floating interest rate. A floating interest rate varies as per the market conditions. This means that if you have chosen a floating interest rate personal loan, the interest rate of your personal loan changes based on market volatility. This type of interest rate is not stable, and hence the repayment of such a loan could be more expensive.

Fixed interest personal loans, on the other hand, have a fixed rate of interest that remains unchanged throughout the personal loan’s tenure. However, do note a specific feature of these loans – the EMI payments that you will make in the initial few years will go towards the interest component of your loan instead of the principal component. Your EMI contributions gradually shift towards the principal component of the loan in a few years.

IDFC FIRST Bank’s FIRSTmoney offers fixed interest rates on monthly reducing basis. In this method, interest is calculated on the outstanding principal balance at the end of each month. As you make your monthly repayments, which cover both principal and interest, the principal amount gradually decreases. Consequently, the interest component for future months reduces as well. This leads to a steady decline in the interest payable over time, ultimately lowering the overall interest paid compared to the other interest calculation methods.

In addition, FIRSTmoney offers several benefits like instant access to funds of up to ₹15 lakhs based on your eligibility, also offering greater flexibility to avail more funds for meeting additional cash requirements. Zero foreclosure charge is another unique benefit of FIRSTmoney where you can close your loan anytime without additional cost. With competitive interest rates and flexible tenures of up to 60 months, FIRSTmoney is surely one of the most affordable loan options for you.

What are the key benefits of fixed interest rate personal loans?

Here are the main benefits of choosing a fixed interest rate personal loan –

1. It offers you security and certainty:

EMI payments are more predictable in the case of fixed interest rate personal loans. You can derive a sense of security and certainty by choosing a fixed interest rate loan.

2. Fixed interest rates help you manage your finances better:

Especially in the case of high inflation and rising prices, fixed interest personal loans relieve you from the stress of paying your personal loan EMIs on time. You can manage your finances better by choosing a fixed interest personal loan as the value of your EMIs is fixed until the end of the loan’s tenure.

If you choose a floating interest rate personal loan, the value of your EMIs will be subject to change during the loan’s tenure.

Comparison between fixed and floating interest rate personal loans –

So how do floating interest rate loans compare against fixed interest rate personal loans? Here are certain features of floating rate personal loans –

1. Your monthly EMIs are subject to change:

Since the interest rates of floating interest rate loans do not remain the same during their tenure, there is a probability of them rising when the market goes through a low phase. This change will have a direct impact on your affordability of your loan since the EMIs will shoot up.

2. When market volatility is high, your loan will add to your financial burden:

Just as the prices of goods and services increase during a high inflationary period, your loan’s financial burden, too, will increase, if you have opted for a floating interest rate loan.

Conclusion

The choice of personal loan interest rate depends on your individual financial situation and your repayment capabilities. However, you can choose IDFC FIRST Bank’s FIRSTmoney fixed interest rate personal loans (monthly reducing basis) to avail a better deal and benefit from a range of customer-friendly features like flexible EMI tenures, zero foreclosure charges, and a completely digital application process.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.