Loans have expanded the scope of our purchase costs. The option to pay EMI each month is a convenient option to manage repayment of loans while paying additional bills. The main factor determining the interest rate on a home loan or personal loan is the interest rate on which you borrow.
However, even today, there are still many people who don't have enough knowledge about interest rates, and they can only find time to apply for loans. So let's first understand what interest rates banks and lenders offer.
Fixed interest rate: from
The fixed rate will not change due to the loan term. In addition, these are 1%-2.5% higher than other types of rates. Here, not all lenders can choose to borrow at a fixed rate.
Variable interest rate: from
These rates are also known as floating rates. They are directly affected by market conditions and are therefore constantly changing. If the market lending rate falls, the amount of EMI of the loan borrower will decrease. Conversely, if the rate increases, the amount of EMI will increase accordingly.
Fixed rate of reset: This rate is fixed for a specific period of time [for example, 3 to 5 years]. After this period, the rates for the next set of years will change.
Fixed cumulative floating rate:
These interest rates are partially fixed and partially floating. Sometimes, the entire loan amount is divided into two parts, one at a fixed rate and the other at a floating rate. One advantage that the borrower can exploit in this situation is that he can choose the rate by which the loan amount is divided. At other times, instead of the loan amount, the term is divided into two parts, and the interest rate is charged in a similar manner during this time.
Choosing the right interest rate may be a bit difficult at first. Here, please keep the following in mind:
• Compare the current interest rate of your home loan, car loan, education or personal loan to the historical exchange rate.
• Analyze whether you are willing to pay for predictable EMI or unpredictable EMI.
• If it is a home loan, please determine your stay in the house and whether you want to sell it in the future.
• If you are lending at a floating rate, you must have a steady income. Therefore, your monthly EMI payment may increase or decrease. If the number is good, but vice versa, it should be affordable.
If you need to save interest on a monthly basis, you can also make a partial advance payment and pay more than three EMIs at a time. Today, many banks offer you some options for prepayment to repay your home loan, education loans and, in some cases, not all personal loans.
Orignal From: Understand the different types of loan interest rates
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