While taking a loan, interest rate is always remains an impotent criteria to consider in to. Further, in time of t
aking up a term loan most of the people finds difficult to decide up on what mode of interest will be ultimate beneficial for the business regards to future course of payments. Lets put few words in defining what do we exactly mean by fixed & floating rate of interest charge. Fixed rate of interest, as the terms suggests rest in a definite rate being fixed at the time of signing in to loan agreement. Again, floating rate of interest floats accordingly as per change in interest rate portfolio of the lender( commonly a bank, other non banking financial institutions etc). At the time of entering in to the contract, either of these types of interest is settled as per relation between the borrower & lender, creditworthiness of the loan seeker & prevailing rate equals or more than the prime rate as prescribed by the governing rules. However, very often people get puzzled in opting out the most appropriate payment mode that will serve best for them. Taking in to account of the following factors can be helpful in taking suitable payment option. Lets have a look..
Firstly while signing in to contract deal, take a wise look in to the current economic scenario as well as future outlook in present term. For instance, if one opts for a loan & the economic strength & stability remains intact.. can be settle of in a fixed rate as the further economic boom may boost up the interest rate to a new high.
Secondly, the present as well as future viability of the industry with in the economy in which the object of the borrower persists. If one asks for home loan, the respective rigidity of the housing industry need to be considered. Henceforth, if the demand is on, it can be presume that the rate will not fall in near future rather it may go up as long as demand dominates.
Thirdly, need to compare the current rate with the prime rate, i.e, the rate prescribed by the regulating authority. If the rate is varies too much need to have further negotiation with the lender or look out other alternative options.
Fourthly, the current REPO & Reverse REPO is also a critical criterion to opine up on mode of interest rate fixation. If there is enough liquidity in money & capital markets, it is expected to encounter a strict monitory policy. Accordingly, the banks & other financial institutions are forced to increase the interest rate to restrict the borrowing capacity of the probable buyers & encourage in savings.
Fifthly & most impotently self risk tolerance capability & anticipation upon future economic credibility plays a vital role in resorting in to either of the payment rate.
Lastly, the tenure or the loan acts in the decision making. If the tenure to too long, it is quite impossible to opine upon what can be the social as well as economical scenario after several years. In such cases, fixed rate can be preferable.
aking up a term loan most of the people finds difficult to decide up on what mode of interest will be ultimate beneficial for the business regards to future course of payments. Lets put few words in defining what do we exactly mean by fixed & floating rate of interest charge. Fixed rate of interest, as the terms suggests rest in a definite rate being fixed at the time of signing in to loan agreement. Again, floating rate of interest floats accordingly as per change in interest rate portfolio of the lender( commonly a bank, other non banking financial institutions etc). At the time of entering in to the contract, either of these types of interest is settled as per relation between the borrower & lender, creditworthiness of the loan seeker & prevailing rate equals or more than the prime rate as prescribed by the governing rules. However, very often people get puzzled in opting out the most appropriate payment mode that will serve best for them. Taking in to account of the following factors can be helpful in taking suitable payment option. Lets have a look..Firstly while signing in to contract deal, take a wise look in to the current economic scenario as well as future outlook in present term. For instance, if one opts for a loan & the economic strength & stability remains intact.. can be settle of in a fixed rate as the further economic boom may boost up the interest rate to a new high.
Secondly, the present as well as future viability of the industry with in the economy in which the object of the borrower persists. If one asks for home loan, the respective rigidity of the housing industry need to be considered. Henceforth, if the demand is on, it can be presume that the rate will not fall in near future rather it may go up as long as demand dominates.
Thirdly, need to compare the current rate with the prime rate, i.e, the rate prescribed by the regulating authority. If the rate is varies too much need to have further negotiation with the lender or look out other alternative options.
Fourthly, the current REPO & Reverse REPO is also a critical criterion to opine up on mode of interest rate fixation. If there is enough liquidity in money & capital markets, it is expected to encounter a strict monitory policy. Accordingly, the banks & other financial institutions are forced to increase the interest rate to restrict the borrowing capacity of the probable buyers & encourage in savings.
Fifthly & most impotently self risk tolerance capability & anticipation upon future economic credibility plays a vital role in resorting in to either of the payment rate.
Lastly, the tenure or the loan acts in the decision making. If the tenure to too long, it is quite impossible to opine upon what can be the social as well as economical scenario after several years. In such cases, fixed rate can be preferable.
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