A fixed interest rate does not change for the agreed period, regardless of market rate movements. In India, truly fixed-rate loans for the entire tenure are rare — most offer fixed rates for 2-5 years before converting to floating. These are called hybrid or semi-fixed loans.
Fixed rates are typically 1-2% higher than floating rates as the lender absorbs interest rate risk. They are beneficial when rates are expected to rise significantly. However, if rates fall, fixed-rate borrowers do not benefit. Under RBI guidelines, prepayment penalties may apply to fixed-rate loans.
Fixed rates offer payment certainty but at a premium. The choice between fixed and floating depends on market outlook and risk appetite.
Nihal Fintech analyzes current market conditions and rate trends to advise clients on whether fixed, floating, or hybrid structures best suit their needs.
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