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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.
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