A fixed-rate loan is one that has the same interest rate throughout the entire life of the loan. As opposed to variable-rate loans, where the interest rate fluctuates based on different factors. There are pros and cons to both types of interest rates, and you should do plenty of research before deciding which one is right for you.
The advantage of a fixed-rate loan is that you know what you’re getting into from the start. You can plan accordingly, knowing that your interest rate will stay the same throughout the entire loan. The disadvantage would be that variable-rate loans, at times, may offer a lower interest rate. But that low rate can increase at any time, which is difficult to plan for in some cases.
There are several types of loans that would be considered fixed-rate loans:
Auto loans: An auto loan is one that borrowers use to purchase a car, truck, SUV, or other types of vehicles. Most auto loans will include a fixed-rate loan. Your interest rate for the loan will depend on a few things including your credit score and credit history, your income, and the specific deals and offers the dealership is willing to give you.
Mortgages: A mortgage is a loan you use to buy a home or property. These are some of the largest loans out there since property and homes are typically very expensive. Mortgages can come in both variable-rate or fixed-rate. Which one you choose will depend on your financial situation, and which one is better for you.
Personal Loans: There are a number of different personal loan options that come with fixed interest rates. Personal installment loans, for instance, come with a fixed rate. This makes these loans good options for consolidating other, smaller debts. They’re also a good alternative to other higher-cost options like payday and title loans.
No matter which loan or interest option you choose, the most important thing is to make sure you’ll be able to afford the payments. Late payments or missing payments altogether will add more fees, interest, and overall debt to your current situation.