Differentiate between fixed interest rates and floating interest rates.

The major differences between fixed interest rate and floating interest rate are as follows −

Fixed interest rate

• Interest rates are high.

• Financial market conditions will have no effect on these rates.

• EMIs are fixed.

• By using these rates, it is possible to plan the budgets.

• It has sense of security.

• It is better for short or medium terms.

• On long term loans, it may have more impact on payments (if, increase in market).

• Less risk is involved.

Floating interest rate

• Interest rates are low.

• Financial market conditions have effect on these rates.

• EMIs are not fixed, they change with interest rates.

• By using these rates, planning of budget is relatively difficult

• These rates will generate savings.

• It is better for long term loans.

• These rates will have less effect on short term or medium term loans.

• High risk is involved.