- Payday loans of fixed interest rate loans
- Fixed interest rate means the rate always stays the same
- Fixed rates means you always know how much you’ll be paying
A payday loan is a fixed interest rate loan. This means that the interest rate charged always stays the same.
What is the difference between fixed and variable interest rates with loans?
A loan with a fixed interest rate is guaranteed to have the same rate of interest throughout the loan period. Whatever rate of interest you agree to pay is what you will pay for the entire time you borrow the money. This is a big advantage to those who like to plan their finances and know exactly what they will be paying. A fixed rate loan means that there will be no fluctuation in the amount you pay no matter what happens to the market.
A loan with a variable interest rate on the other hand means the amount you pay can change based on the national market. So borrowers who believe interest rates will decline tend to choose variable rate loans. In general, variable rate loans will have lower interest rates than their fixed counterparts. This is in part because there is a risk for consumers. Rising interest rates could greatly increase the cost of borrowing, and consumers who choose variable rate loans should be aware of the potential for elevated loan costs.
What is better? Fixed or variable rates?
Interest rates are a little more complex than just better or worse. There are advantages and disadvantages to both fixed and variable rate interest rates. The big advantage of having a fixed rate is that you will always know exactly what you are paying, no surprises. This makes financial planning easier and can give you peace of mind. For anyone who values predictability in their finances or can’t afford the risk of a variable rate loan, a fixed rate loan is the right choice.
However, if you have a variable interest rate loan, there is the possibility of saving money. For a long-term loan like a mortgage, it’s possible that the interest rates will drop over the term of your loan. This means that during the time you’re paying off the loan your interest rates could decrease, saving you money. However, there’s also the distinct possibility that the interest rates could rise, meaning borrowing is far more expensive than you originally thought. For those willing to take the risk, variable rate interest loans are a potentially good choice. If you know you will be able to pay off your loan very quickly a variable rate interest loan could be better because the starting rates are usually lower than that were fixed rate loans, this is designed to balance out the extra risk for borrowers.
When are fixed and variable rates used for loans?
Mortgages – Usually, with a mortgage, you can choose a mortgage with a fixed rate of interest or variable rate. There are widely available options for both. Which one is right for you will depend on what you can afford and the level of risk you’re willing to take.
Payday loans – Payday loans are offered as a fixed rate interest loan. This means you’ll always know exactly how much interest you need to pay and what it will cost you, no matter what happens in the market.
Student loans – Whether or not your student loan is a fixed or variable rate will depend on your lender. Generally speaking, a good choice for a student loan is a fixed interest rate student loan, because you have the certainty of knowing exactly how much you owe and how long it will take to pay you off.
Personal loans – For a personal loan, borrowers tend to opt for a fixed rate loan because of the security and certainty that it can offer them. Just like with a payday loan, the predictability of a fixed interest rate loan is invaluable to a borrower.