While it's important to look for loans with low interest rates, it's also important to understand the difference between fixed and variable interest rates. This is particularly true if you're borrowing large amounts of money, such as when taking on a mortgage. Each option has its benefits, and in this article, we'll take a closer look at both, as well as which may suit certain types of borrowers better.
Fixed rate loans.
A fixed interest rate essentially means that the amount of interest payable over the duration of a loan will be 'locked' for a certain period of time. This is typically between one and five years, after which the interest rate will either revert to a variable rate or switch to a new fixed rate.
A key benefit to a fixed interest rate is that borrowers have a very precise idea of how much interest they'll need to pay over a set period. In addition, fixed interest rates provide insulation against any loan interest rate increases, whereas variable rates will increase. This can be a great way to protect against economic instability, allowing borrowers to continue paying a set rate for the duration of the fixed period, no matter how high variable rates climb.
These benefits can be invaluable if you're on a tight budget, as there won't be any unexpected fluctuations that may create unplanned financial pressure. It's worth keeping in mind, however, that some fixed rate loans lack the flexibility of variable rate options, such as the ability to make additional repayments and get out of debt sooner.
This information has been provided without taking into account any of your objectives, financial situation or needs. You should consider whether it is suitable for your circumstances before acquiring this product.
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