Fixed interest rate / Fixed rate
In the case of a fixed interest rate, the interest established in the loan agreement is valid for the entire term. The costs of the loan can be accurately calculated for a fixed loan regardless of changes in the market environment.
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- + The interest rate and installments are fixed for the entire term and can be calculated throughout.
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- - If the interest rate in the world and in this country continues to fall, then we will fail.
Fixed interest rate means that the interest rate established in the loan agreement is fixed during the entire term. You often hear that the interest rate of a specific credit scheme is fixed for a 3, 4, or 5 year interest period. This should not mislead us, because the interest period rate may change at the end of the interest period (after 3, 4, 5 years), so these loans also have variable-rate.
The bank sets the interest rate of fixed interest rate loans in such a way that during the term there is a buffer to survive bad times. The size of the buffer depends on the market situation. If the current interest rate at the time of borrowing is far below the interest rate that can be considered normal in the long term, fixed interest rate loans are usually more expensive than variable interest loans.
It is also typical that during such a period, the loan rates rate of loans with variable interest rates remains well below the interest rate of loans with fixed interest rates. And if we live in times of inflationary, then these scissors usually close. The latter is typical even if there are signs of a crisis.
As a borrower, whether we are better off with a fixed or variable interest rate loan basically depends on our risk sensitivity and position. If we are optimistic about the future, then a loan with a variable interest rate is better. If we strive to minimize risk and predictability is important to us, then it is advisable to choose fixed interest rates.
If our company can transfer the risks to customers in the event of a crisis or rising inflation, then variable interest is more beneficial. If we have little room for maneuver in shaping prices, but the course of business is stable, then we will have a more relaxed dream with loans with fixed interest rates.
Last edited: January 10, 2023