How Fixed Interest Rates Work

Interest rates are an of import portion of any loan or credit line. The interest rate that you have got on your loan, credit card, or other credit line can seriously impact the sum amount that you pay toward repayment; after all, that's how lenders do their money.

All interest rates are not the same, however… some rates will fluctuate over clip as local and national interest rates change, whereas others are put at a certain degree and stay at that degree until the loan or credit line is repaid in full.

Below you'll happen information on the latter type, which are known as fixed interest rates.

Defining Fixed Interest Rates

A fixed interest rate is one that remains at a specific rate regardless of the additions and lessenings of interest rates locally and nationally. This agency that if an interest rate is fixed at 10%, it will stay at 10% until the loan Oregon credit line have been paid off whether other rates addition to 20% or driblet down to 5%.

These rates are sometimes offered for an introductory time period to add security to a new loan or credit card, after which the interest rate returns to a variable rate significance that it fluctuates with the additions and lessenings of other rates.

Advantages of Fixed Interest Rates

Obviously, the chief advantage of a fixed interest rate is that you can vouch your interest rate against future increases. This is especially utile in states of affairs where you happen a particularly good interest rate and manage to lock it in as a fixed rate. No matter what increases come up while you're making your payments, you still keep your good interest rate.

Another advantage of a fixed interest rate is the fact that fixed rates that are used in a promotional mode (as in the lawsuit of introductory rates and the like) are usually significantly lower than other rates that are available.

Even though introductory fixed rates run out after a clip (usually 6 calendar months or 1 year), you still salvage money on your payments during this clip and can take advantage of this to seek to get ahead on your payments so that you have got fewer payments to do at a higher rate.

Disadvantages of Fixed Interest Rates

Of course, fixed interest rates aren't without their disadvantages. The major disadvantage of fixed rates is the fact that when interest rates driblet below the rate that you are paying, you still have got got to pay the higher rate.

This tin be particularly troublesome in the lawsuit of mortgages or automotive financing, since interest rates can drop and stay low for relatively long time periods of time… significance that you're having to pay the higher rate until the variable rates rise again.

Another disadvantage is that when promotional rates end there is usually a much higher variable rate that have to be paid, resulting in a sudden addition in your monthly payment that you might not be expecting… after all, you've been paying the lower rate for a while, and you might have gotten used to the payments.

Common Places to Find Fixed Interest Rates

Fixed interest rates can look in a assortment of places, ranging from automotive funding and mortgage loans to debt consolidation and homeowner loans. They are often used as an introductory rate for automotive funding and credit cards, though some mortgage lenders utilize them in a promotional mode as well.

The handiness of fixed interest rates depends upon the individual lender, so be certain to look into whether they are offered or not before expecting to have one.

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