The Pros and Cons of Fixed-Rate Loans

Fixed-rate loans can be tricky to understand, but come in handy if you are in need of cash without the uncertainty of interest rate fluctuations.
Modern Times Apr 17, 2019
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A fixed-rate loan is exactly as it sounds. Depending on the loan contract, a fixed-rate loan is one that does not experience rate fluctuation due to the changes in interest.

This only lasts for a limited period of time, but allows the borrower time to plan out future payments properly. There are pros and cons to these kinds of loans.

Predictability

The biggest perk of a fixed-rate loan is that you'll be able to predict your payments for a certain period of time and will be able to sort your finances to accommodate that.

You can better budget how much you'll be spending each month to pay this loan back. Since you can plan ahead, you'll make your monthly payments and positively impact your credit score.

Higher Interest Overall

A con to these kinds of loans is that they have the highest interest rates of any loan type.

Because you're likely taking longer to pay off this loan and are paying it at a fixed rate, your interest will be higher in order for the loan vendor to get their money's worth in the situation.

Best for Large Purchases

If your looking to make a large purchase like a home, fixed-rate home loans can help.

Most of these loans have fixed-rates for five plus years, giving you time to save up for the increasing costs once that time ends.

Payoff Takes Longer

Another con to this loan type is that it will ultimately take you longer to pay off. This isn't necessarily a bad thing, especially if you know this going in.

However, if you're not prepared to pay off this loan for an extended period of time, a fixed-rate loan may not be for you.
Different loan types can be confusing and it can be hard to know which one is right for you.

If you are in need of money for a big purchase and are fully prepared to be paying it off for some time, a fixed-rate loan may be just the thing you need.
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