Fixed v Variable Interest Rates
Although mortgage lenders have several ingenious interest rate structures to appeal to borrowers, the majority of personal loans have a fixed interest rate for the entire life of the loan. As a result, the monthly payment on a fixed interest rate personal loan will remain the same for the entire term of the loan. Fixed rate mortgages are often only fixed for a limited period of time at the beginning of the mortgages.
For example, a personal loan with a fixed interest rate of 8.0% would have an 8.0% interest rate until the loan was fully repaid but a mortgage with a fixed interest rate of 5.0% would only have a fixed interest rate for the first one, three or five years (depending on the mortgage). After that initial period, the interest rate on the mortgage would probably fluctuate at a margin above the base rate.
Variable rate loans and mortgages obviously change with prevailing market conditions. Banks and building societies are not required change their interest rates with the movement of the Bank of England but most lenders will shadow fluctuations in the base rate.
The most important thing to remember about a variable rate personal loan is that the monthly payments will change as the lender adjusts to the interest rate. This might be good or bad for you as the borrower. If rates go down, your monthly payments will be reduced but, if your interest rate increases, your monthly payments will increase and might put you into credit difficulties. It is important to budget for these fluctuations when you take the loan out and if you get into trouble making the repayments, it is important to talk to your lender about it early. Remember the lender wants you to repay the loan so they will often (but not always) be reasonable about working with to ensure that the loan is repaid.
Finally, remember to read the small print of your credit agreement to figure out how your interest rate works.
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR
OTHER LOAN SECURED ON IT. All loans are subject to status. Written quotations
are available directly from the lender on request to the lender. A broker
fee might be due on transactions completed through this site.
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