When taking out a loan, finding the lender that offers the best
interest rates is a very important step. Depending upon the loan
that you're applying for, however, you might find that you have
to make certain decisions before you can determine which loan
offer really has the best rate. One of these important decisions
that you might have to make is whether or not you want to have
your interest at a fixed rate or at a variable rate.
Fixed and variable rates are most common when dealing with
mortgage loans, though there are other types of loans that offer
both types of interest as well. If you're not sure which type of
interest would be best for you, or what the main differences are
between the two types, then the information presented below
might help you to make an important decision concerning your
next loan.
Fixed Rates
Fixed interest rates are rates which will not fluctuate as time
goes by, regardless of how much national interest rates may rise
or fall. They are often used as part of a promotion, with low
introductory fixed rates being replaced by either variable rates
or a higher fixed rate after six months or more have passed.
Generally, the only way to change a fixed interest rate is to
refinance the loan and get either a lower fixed rate or a
variable rate on the new loan agreement.
Variable Rates
Unlike fixed rates, variable rates fluctuate in response to
changes in national rates. When national rates increase, a
variable rate loan will also increase... but when national rates
decrease, the variable rate will do the same. Variable rates are
the most common type of interest rate, and are generally used
for small loans, credit cards, and many other types of debts. It
can be difficult to predict exactly how much you will pay in
total with variable rates, but if national interest rates stay
low then you may end up paying much less than originally
estimated.
Advantages and Disadvantages of Fixed Rates Fixed rates have
several advantages and disadvantages, and may or may not be
right for you and your loan needs. They provide security against
increases in national rates, meaning that you might end up
paying a much lower rate if you've locked in a lower fixed rate
than the current national rate. If national rates fall, however,
you may end up paying more than you would with a variable rate.
Promotional fixed rates are generally set low, but as they only
last for a limited amount of time you might end up paying a much
higher rate once they expire. Fixed rates can make budgeting
easier, however, due to the fact that all payments should be for
the exact same amount.
Advantages and Disadvantages of Variable Rates
Like fixed rates, variable rates have their own advantages and
disadvantages. While they can occasionally lead to lower
interest rates than their fixed counterparts, the fluctuations
of national rates will generally bring them up again before
you've finished repaying the loan. Variable rates can sometimes
grow to several times the rate you were originally paying in a
matter of months, though there is always the possibility of
having just as sharp of a drop as well. With variable rates most
loans will have the same monthly payments, though the number of
payments may be extended or the final payment may be a different
amount due to the fluctuating interest that has been accrued
over the loan term.
You may freely reprint this article provided the following
author's biography (including the live URL link) remains intact:
About the author:
John Mussi is the founder of Direct Online Loans who help
homeowners find the best available loans via the
www.directonlineloans.
co.uk website.
