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What is a Fixed Interest Rate?

A fixed interest rate refers to a loan in which the rate of interest does not change over time. This is the opposite of a variable interest rate. For instance, a home buyer who takes out a variable rate mortgage might find that their monthly payment rises when the Federal Reserve increases interest rates, while a homebuyer who has taken out a fixed rate mortgage would see no difference in his or her monthly housing payment.

Mortgages are not the only types of loans in which borrowers can choose from a fixed rate of interest and an interest rate that is subject to change. Borrowers taking out signature loans, quick loans, and installment loans can also choose a fixed interest rate for the repayment of the money they have borrowed.

Fixed Interest Rate Example:

For example, let’s say Julie goes to the loan agency and takes out a quick cash loan of $1,000. As long as the borrower qualifies, these types of installment loans can be used for virtually any purpose, including paying off high interest debt like credit cards, making major purchases, or even funding a family vacation.

Once Julie has qualified for the fast cash and gotten the $1,000 she requested, she will begin to pay back the money over time. The exact amount she is required to pay each month will depend on the length of the fast loan and the interest rate charged by the loan agency.

The longer the term of these signature loans, the lower the monthly payment will be. For instance, if Julie uses a signature loan with a fixed rate of interest of 5% to borrow $1,000 and pays it back over 24 months, her required monthly payment would be just $44.

If Julie is able to afford a slightly higher monthly payment, she could choose from cash loans with a 12-month term. In that case, her monthly payment would rise to $86. The difference in monthly payment and repayment amount is a reflection of the changes in loan term and interest charges.

Of course not every borrower will qualify for a low interest rate on the cash loans they need. In some cases, the borrower might have a poor credit history or no credit history at all, and that could cause the interest rates on their easy money loans to be far higher.

Advantages of Fixed Interest Rate Loans

The good news is that these bad credit personal loans are widely available, so borrowers can access the cash they need. Even better, borrowers can use their easy loans to build a solid credit profile; all they need to do is make their payments on time and pay their installment loans in full.

Whether the borrower uses easy money loans to pay bills or cash loans to make major purchases, there are distinct advantages to choosing a fixed interest rate. Borrowing money with a fixed rate of interest means a predictable monthly payment, making it easier to budget and stay financially solvent.

Financial Terms and Definitions

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