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Loan on Floating Interest Rate and Fixed Interest Rate Difference

difference between floating and fixed interest rate

Which One Should You Choose?

The decision depends on your financial situation, market outlook, and risk appetite:

✔️ Choose Fixed Interest Rate if:

  • You prefer stability and predictability.

  • You’re borrowing during a low-interest period and want to lock in the rate.

  • You are risk-averse and need consistent EMIs for budgeting.

✔️ Choose Floating Interest Rate if:

  • You expect interest rates to drop in the future.

  • You are financially flexible and can handle fluctuating EMIs.

  • You want to save more over the long term, especially if loan tenure is long.

Real-Life Example

Suppose you take a home loan of ₹30 lakhs for 20 years.

  • Fixed Rate @ 9% p.a.:
    EMI = ₹26,992
    Total Payment = ₹64,78,112

  • Floating Rate @ 8.5% (can vary):
    If the rate drops to 7.5% in the future, you save significantly.
    But if it rises to 10%, your EMI increases accordingly.

This shows that while fixed rates are safer, floating rates can be more rewarding if timed right.

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