Fixed Interest Rate

What is a Fixed Interest Rate?

A fixed interest rate remains constant for the entire loan tenure, regardless of changes in market or benchmark interest rates. Since the rate does not fluctuate, the borrower’s EMIs remain the same throughout the repayment period.

When you take a loan with a fixed interest rate, the lender locks the interest rate at the time of loan approval.

For example:

Loan amount = Rs. 5,000

Interest rate = 11% p.a. (fixed)

Tenure = 5 years

Even if the RBI changes the repo rate or market lending rates increase or decrease over these 5 years, your loan interest rate and EMI generally remain unchanged, as per the loan agreement. This makes budgeting easier because your monthly repayment remains predictable.

Benefits of a Fixed Interest Rate

• Unchanged EMIs & Interest Rate
• Protection from Market Volatility
• Long-term Financial Security
• Easier Budgeting and Financial Planning
• Widely Available across Personal, Auto, or Consumer Loans

Fixed Rate of Interest vs Variable Rate of Interest

Who Should Choose a Fixed Rate of Interest?

Borrowers who:

• Prefer predictable monthly EMIs
• Have a fixed monthly income
• Want protection against rising interest rates
• Prefer stable repayment throughout the loan tenure 
• Value certainty over potential savings from falling interest rates

FAQs

What is a fixed interest rate on a loan?

A fixed interest rate remains unchanged throughout the loan tenure, resulting in fixed EMIs.

How does a fixed interest rate work?

The lender fixes the interest rate when the loan is sanctioned. The rate does not change during the loan tenure, irrespective of changes in market interest rates.

Is a fixed interest rate better than a floating (variable) interest rate?

It depends on your financial needs. A fixed interest rate offers fixed EMIs and predictable payments, while a floating interest rate may offer savings if market interest rates decline.

Can a fixed interest rate change during the loan tenure?

A fixed interest rate will not change during your loan tenure. However, changes may occur if the loan agreement includes reset clauses or specific terms and conditions agreed upon by the borrower and lender.

Which loans usually have fixed interest rates?

Fixed interest rates are commonly offered on personal loans, vehicle loans, education loans, consumer durable loans, and fixed-rate mortgages.