Understand Your Interest Rates Before You Borrow
When applying for a loan, one of the most important factors to consider is the interest rate. It directly affects your monthly EMI, total repayment amount, and financial planning. While most people know what a loan is, many are confused by two commonly used terms: Fixed Rate and Floating Rate.
In this blog, we’ll explain the difference in simple terms, help you choose the right one, and show you how Manchanda Finance can guide you through both options—whether you’re taking a personal loan, home loan, business loan, or overdraft facility.
What is a Fixed Interest Rate Loan?
A Fixed Rate Loan means the interest rate stays the same throughout the loan tenure. Whether it’s a 2-year or 10-year loan, your EMI remains constant, giving you predictability and stability.
✅ Example:
If you take a personal loan at 12% fixed interest, you will continue to pay that rate for the entire term—regardless of market conditions.
✅ Best For:
- People with a fixed monthly budget
- Those who prefer long-term planning
- Times when interest rates are low and expected to rise
What is a Floating Interest Rate Loan?
A Floating Rate Loan means the interest rate changes based on market conditions. It is linked to a benchmark rate (like the RBI Repo Rate or MCLR). So, your EMI may increase or decrease during the loan tenure.
✅ Example:
If you take a home loan at 10% floating rate and the RBI lowers the repo rate, your interest rate might drop to 9.5%, reducing your EMI.
✅ Best For:
- Borrowers expecting interest rates to fall
- Those who can handle flexible EMI amounts
- Long-term borrowers who may benefit from rate drops
Key Differences Between Fixed and Floating Rates
| Feature | Fixed Rate | Floating Rate |
|---|---|---|
| Stability | Constant EMI | EMI varies |
| Market Link | Not linked to external rate changes | Linked to market interest rates |
| Risk Factor | Lower risk | Higher risk |
| Cost | Slightly higher rate upfront | Lower starting rate but may rise |
| Ideal For | Conservative borrowers | Risk-tolerant borrowers |
Advantages of Fixed Rate Loans
- Predictability: You know exactly how much you’ll pay every month.
- Peace of mind: No stress about rising interest rates.
- Good for long-term loans: Especially useful for home loans or large personal loans where stability matters.
Advantages of Floating Rate Loans
- Lower initial cost: Usually cheaper to start with compared to fixed rate loans.
- Benefit from rate cuts: If interest rates go down, your EMIs reduce.
- Good for short-term loans: Useful if you expect rates to remain stable or fall in the near future.
Which One Should You Choose Fixed rate or Floating rate?
The right choice depends on your financial situation and future outlook.
There is no one-size-fits-all answer. The right choice depends on your financial goals, risk tolerance, and loan type.
- If you value stability and want to avoid surprises, go for a fixed rate loan.
- If you can manage fluctuations and want to take advantage of possible rate cuts, a floating rate loan might be better.
For example:
- Personal Loans: Often better with fixed rates due to short to medium tenure.
- Home Loans: Floating rates can help if you expect rates to fall.
- Business Loans: Choice depends on cash flow predictability.
✅ Choose Fixed Rate if:
- When interest rates are low and expected to rise.
- If you are risk-averse and prefer stable financial planning.
- For salaried employees who depend on a fixed monthly income.
- When taking long-term loans (like home loans) during uncertain economic conditions.
✅ Choose Floating Rate if:
- When interest rates are high but expected to drop in the future.
- If you are financially flexible and can handle fluctuating EMIs.
- For short-term loans where risks of drastic rate changes are low.
- For business owners who may benefit from reducing EMIs when market rates fall.
How Manchanda Finance Supports You
At Manchanda Finance, we offer both fixed and floating rate options across our entire loan portfolio:
- Personal Loans (Unsecured, easy approval)
- Home Loans (With flexible interest structures)
- Business Loans (Secured and unsecured)
- Overdraft Facility (With dynamic usage and interest)
Our experienced loan advisors help you choose the right type of interest rate based on your budget, future income plans, and loan amount.
Tips to Choose the Right Rate Type
- Assess your financial stability – Are you comfortable with changing EMIs?
- Understand market trends – Do you expect interest rates to go up or down?
- Consider loan tenure – Fixed rates make more sense for short- to medium-term loans.
- Factor in prepayment options – Floating rates usually allow flexible repayment.
- Speak to an expert – Our team can analyze your profile and suggest the most cost-effective option.
Frequently Asked Questions (FAQs)
1. Is a fixed interest rate always better?
Not necessarily. Fixed rates offer stability, but floating rates can help you save money if interest rates go down during your loan tenure.
2. Can I switch from fixed to floating interest rate later?
Yes, many lenders (including Manchanda Finance) allow you to switch, often with a nominal fee. It’s best to consult our team for personalized advice.
3. Which rate is better for home loans—fixed or floating?
If market rates are expected to drop, floating is better. But if you prefer stable EMIs over 15–20 years, fixed may suit you more.
4. Do floating interest rates always increase?
No. They can increase or decrease based on the central bank’s decisions and economic conditions.
5. How do I apply for a loan with Manchanda Finance?
It’s simple! Call us or apply online. We offer both fixed and floating rate loans with transparent processes, fast approval, and expert guidance.
6. Which loan type is cheaper?
Floating rates often start lower, but fixed rates may save money in the long run if interest rates rise.
7. Are fixed rate loans better for long tenures?
Yes, fixed rate loans are ideal for long-term borrowers who want predictable EMIs.
8. What happens if RBI reduces interest rates?
For floating rate loans, your EMI may decrease. For fixed rate loans, there is no change.
9. Can I prepay a fixed or floating loan?
Yes, both can be prepaid, though some lenders charge prepayment fees (usually on fixed rate loans).
Conclusion: Choose the Smarter Loan Option
Whether you’re borrowing for personal use, buying a home, or growing your business, choosing the right interest rate—fixed or floating—can help you save money and manage your finances better.
At Manchanda Finance, we’re committed to helping you make informed decisions. With our wide range of loan options and flexible interest rate structures, you can borrow confidently and repay comfortably.
👉 Need help deciding? Contact Manchanda Finance today. Let’s find the perfect loan for your needs.