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.

Updated on: 26-Sep-2020


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