When you take a loan, the biggest question is: fixed vs floating interest rate — which one is better? 🤔 Many people get confused because they don’t understand the difference between fixed vs floating interest rate.
This article will explain both clearly floating interest rate vs fixed interest rate so you can choose the best option for your loan in 2025!
💡 What Is a Fixed Interest Rate?
A fixed interest rate means your interest rate stays the same for the whole loan period. Your EMI (monthly payment) doesn’t change even if the market or RBI changes the repo rate. 📈
👉For example: If you take a ₹10 lakh loan at a 9% fixed interest rate for 20 years, your monthly EMI will stay the same — about ₹8,650 every month.
Why choose fixed rate?
- ✅ You want stability and predictable EMIs
- ✅ You don’t want surprises if RBI changes rates
- ✅ You plan to keep the loan for a long time
Drawbacks:
- ❌ Usually a bit higher interest rate than floating
- ❌ You won’t save money if interest rates go down in the future.
🔄 What Is a Floating Interest Rate?
A floating interest rate changes based on market trends and the RBI’s repo rate. If the repo rate increases, your EMI rises. If it drops, your EMI becomes lower.⚖️
For Example: ₹10 lakh loan at 8.5% floating rate may start with ₹8,347 EMI but can increase if repo rate rises.
Why choose floating rate?
- ✅ Starts with lower interest than fixed
- ✅ Can save money if rates go down
- ✅ Good if you can handle EMI changes
Risks:
- ❌ EMI can go up anytime
- ❌ Harder to plan your monthly budget
📊 Understanding Repo Rate and Its Effect on Floating Loans
Repo rate is the interest rate RBI charges banks when it lends them money. If the RBI increases this rate, banks usually hike the interest rates on floating loans too. So, if you have a floating rate loan, your EMI will increase when repo rate goes up. 📈
Fixed rate loans don’t change with repo rate, so no impact there.
👉 Example: If the repo rate goes up by 0.25%, your loan interest could increase from 8.5% to 8.75%, making your EMI slightly higher.
So, if you choose a floating loan, keep an eye on RBI’s repo rate updates!
📃Quick Difference between floating and fixed interest rate
| Feature | Fixed Interest Rate 🔒 | Floating Interest Rate ⚖️ |
|---|---|---|
| EMI Stability | Stable and fixed | Changes with market & repo rate |
| Interest Rate | Usually higher initially | Starts lower but may increase |
| Risk Level | Low | Medium to high |
| Best For | People needing payment predictability | Flexible earners who can handle EMI changes |
| Repo Rate Linked? | No | Yes |
| Loan Tenure Flexibility | Usually fixed tenure | More flexible tenure options |
| Prepayment Charges | May have higher prepayment penalties | Often lower or waived prepayment fees |
| Impact of Inflation | EMI remains same despite inflation | EMI may increase if inflation impacts repo rate |
| Processing Fees | Usually standard and fixed | May vary with lender and loan type |
🔒Benefits of Choosing a Fixed Interest Rate Loan
- 📅 EMI remains fixed throughout the loan tenure for easy budgeting.
- 🛡️ Shields you from interest rate hikes due to RBI policy changes.
- 😊 Provides financial stability and peace of mind every month.
- 📊 Easier to plan long-term finances without surprises.
- 👔 Ideal for salaried people with stable income.
🚘 Floating vs Fixed Interest Rate Car Loan – Which One to Choose?
When buying a car on loan, choosing between a floating vs fixed interest rate car loan can impact how much you pay every month.
🧠 Simple Example:
Let’s say you take a ₹6 lakh car loan for a 5-year tenure.
✅ Fixed Interest Rate (9%)
Your EMI stays around ₹12,455 every month, no matter how the market changes.
🔄 Floating Interest Rate (Starts at 8.5%)
Your EMI may start a bit lower — around ₹12,300 — but it can go up or down based on the RBI’s repo rate.
You could save money if rates drop — but you also risk paying more if they rise.
🧮Easily Calculate Your Loan EMI & Eligibility
Curious about your monthly EMI for fixed vs floating interest rate loans? Here’s how to find out ! Don’t guess — use free EMI tools to plan better:
- ✅ EMI Calculator – Just enter your loan amount, interest rate (fixed or floating), and loan tenure to get your monthly EMI.
- ✅ Loan Eligibility Checker – Not sure if you can get a loan? Use this tool to check based on your income and credit score.
👉 Use both tools on our website to compare fixed vs floating interest rate loans smartly and plan your budget better!
| EMI Loan Calculator | Check Loan Eligibility |
❓ FAQs: Fixed vs Floating Interest Rate
Q1. Is floating interest rate risky?
A1. Yes, because EMIs can go up when repo rates increase📅.
Q2. When is a floating interest rate better?
A2. If repo rates are low and may stay low, floating can save you money✅.
Q3. Can I change my loan from a floating interest rate to a fixed interest rate later?
A3. Yes, some banks allow switching, but they may charge a fee 📊.
Q4. Is it safe to choose a fixed interest rate in 2025?
A4. Yes, if you want stable EMIs and don’t want market surprises 🕵️♂️.
Q5. Does floating rate mean my EMI can go very high?
A5. It may go up, but it mostly depends on RBI’s changes to the repo rate 🌟.
Q6. What if I want to prepay a fixed rate loan early?
A6. Some banks may charge a penalty, so check this before taking the loan😊.
Q7. Will a high CIBIL score give me better loan interest rates?
A7. Yes! A good credit score helps you get lower rates and easy approval 💸.
Q8. Is SBI home loan interest rate fixed or floating?
A8. SBI offers both fixed vs floating interest rate options based on your preference.
Final Thoughts on fixed vs floating interest rate🎯
When deciding between fixed vs floating interest rate, it all comes down to your financial situation and how much risk you can handle. A fixed interest rate loan is best if you want steady EMIs and less worry. On the other hand, a floating interest rate loan works well if you can manage changing EMIs and want to benefit when rates fall.
So, before choosing fixed vs floating interest rate which is better, keep an eye on market trends and use our free EMI calculator to check your exact monthly payments. This way, you can choose the option that fits your budget perfectly!
| EMI Loan Calculator | Check Loan Eligibility |