Different Types Of Interest Rates

Interest is the price we pay to borrow money. As discussed earlier, the rate of interest is different for different loans. But broadly based on the type of interest rate charged, a loan can be of two types-

Fixed interest rate loans charge a steady interest rate throughout the tenure of the loan. The EMI therefore remains constant during the tenure of the loan. It is generally better to opt for a fixed rate only when the prevailing interest rates have reached rock bottom levels and if interest rates are expected to rise. 

Floating interest rate loans charge interest that moves with the market lending rates and thus, is prone to fluctuations. The EMI would increase or decrease depending on the interest rate movement. It is generally better to opt for a floating rate loan only when the prevailing interest rate levels are expected to fall further.