If you have been in search of a personal loan that has the right fit for you, you might have come across the words ‘fixed term’ or ‘fixed variable’ loan which is the same thing, but you want to understand how this will affect you. With most things, there are pro’s and con’s and we have broken it down into something that will help you make an informed decision.
What is it?
A fixed personal loan is basically loan charges that have a fixed interest rate, which means that your repayments will not change for the period of the loan. This is usually a term that works for someone who wants stability in terms of knowing how much you will be expected to pay each month. If you are a budget strict person, it will work perfectly for you because you can factor this into your budget knowing that it will never change.
The advantages of having a fixed personal loan
The obvious drawcard is that the payments towards your loan will remain the same, helping you know just how much you need to put aside to pay it off. This also means that when the market interest rate rises and falls your loan will not be affected.
Disadvantage of having a fixed personal loan
When choosing a fixed rate personal loan, you will find that the disadvantage to this is that the fixed interest rates may be higher than the variable rates in the long-term. Another disadvantage could be the fact that you could be paying more than a variable rate loan.
There is also a limit in terms of how much you can pay as early repayment. It’s advisable that you check whether there will be additional fees you will have to pay when making early repayments. Since it is a fixed rate, you won’t benefit from any decreases in interest rates.
The option of going secured or unsecured
This will be determined by your particular needs and circumstances as to whether you would want to go with a secured fixed rate or an unsecured fixed rate. If you need a second opinion, you can always speak to a financial advisor who will help you make an informed decision about your situation.
Things to keep in the back of your mind
It’s always important that you compare and research whether a fixed rate loan or any loan for that matter suits the situation that you are in. What worked for John Doe might not work for you. Also consider:
- Early exiting of the loan – Exit fees on fixed rate loans can be high since they leave your lender at a disadvantage. The lender will expect you to repay them through ‘break costs’ which consider the time and amount left on the loan. You can ask your lender to show you the ‘break costs’ to see how much you will be paying.
- Fees and charges – Always look at the terms and conditions in terms of fees and charges before signing up for a loan. Before you sign up for a loan it would be best to compare and see what other offers are out there.