In August 2019 the RBI brings down the MCLR by 0.35%, setting the current rate at 5.4%. With a drop in the MCLR the total cost of advances has lowered substantially, benefiting the customers. 

The MCLR or the Marginal Cost of Fund Based Lending Rate is the base rate below which the financial institutions are restricted from lending. Before providing the Lenders calculate their interest rate (both fixed and floating rates) depending on this base rate. 

What is a Fixed Interest Rate?

A fixed interest rate remains the same throughout your loan tenor. It does not change with the fluctuations in the MCLR or repo rate. Also, the EMIs of advances availed at a fixed interest rate remains fixed throughout your loan tenor. 

What is a Floating Interest Rate? 

A floating interest rate can fluctuate depending on the present economic condition, when there is a change in the MCLR. The EMIs of advances with such interest rate also changes with the fluctuation in the MCLR.

It is essential for every borrower to understand whether fixed or floating rate of interest will be beneficial when they avail long term credits such as a loan against property. You should also know the charges of your loan against property that you will have to pay along with the payable interest.  

Let’s take a look at whether fixed or floating rate of interest will offer better profit when you apply for a credit. 

Fixed vs Floating Interest Rate – which is Beneficial?
Advantages of Fixed Interest Rate: 

  1. Fixed interest rates remain unchanged throughout your loan tenor, which ensures you pay a predetermined EMI throughout the tenor. You can plan your finances well in advance and will be less likely to default on repayments. 
  2. Fixed rates are beneficial when applying for shorter loan tenor as your advance will be independent of the volatile market. 

Advantages of Floating Interest Rate:

  1. Financial institutions usually charge lower rates if you opt for floating interest. 
  2. If there is a drop in the MCLR, the interest rate at which you have availed your loan will lower, making your EMIs more affordable. 
  3. You do not have to pay any prepayment charges if you have availed a loan at a floating interest rate. 

Which Type Of Rate Should You Go For?

Your floating or fixed interest rate is one of the factors that affect the interest rate for loan against property. You can choose to opt for a floating interest rate if you have a high risk appetite and can understand the current condition of the financial market. It is suitable for advances with a longer tenor. You can avail a floating interest rate at 1% to 2% lower than fixed interest rate which you can benefit from. 

Fixed interest rates provide you with advances at a lower risk. Your interest rate will remain the same throughout the tenor and you can estimate your EMIs well in advance. You can easily keep your obligations lower by calculating your income and repayments.

Thus, while you avail advances, it is crucial that you compare between fixed vs floating interest rate and decide the type of your interest rate accordingly. Several financial institutions and NBFCs provide secured advances at an attractive interest rate. Bajaj Finserv is one such NBFC that offer secured credits like Loan Against Property at a competitive rate against minimal documents. They also provide balance transfer facilities, online account access, a prolonged tenor of up to 20 years, substantial loan amount of up to Rs. 3.5 Crore and other lucrative benefits. 

Bajaj Finserv also brings you pre-approved offers that reduce the hassle of the application process and saves you time. These pre-approved offers are available on both secured and unsecured financial products such as home loans, business loans, personal loans, etc. To check your pre-approved offer, you will have to share minimal details like your name and phone number. 

Now that you know the comparison between fixed vs floating interest rate consider checking the repo rate and MCLR before application. Besides, do make sure to make timely payments to avoid additional late payment fees and accumulation of debts.