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Personal Loan Floating Interest Rate: Meaning, Advantages & Disadvantages, Calculation


When you apply for a Personal Loan, the interest rate you agree to pay is crucial. There are two types of interest rates: a fixed interest rate and a floating interest rate. 

With a fixed interest rate, your repayments stay the same for the complete loan tenure. When it comes to a floating interest rate, the rate can change meaning your repayments could go up or down.

A fixed interest rate is better for borrowers because it provides stability. You will be able to figure out the repayment amount and budget accordingly. 

On the other hand, a floating rate of interest may start lower than a fixed interest rate, but it can go up. That makes it harder to predict what your payments will be. Vice versa, when you understand market conditions, you can use floating interest rates to your advantage. 

It is important to research and make an informed decision regarding your instant Personal Loan. This article will help you to understand floating interest rates in detail. 

What is a Personal Loan Floating Interest Rate?

A floating interest rate on an instant Personal Loan is an interest rate that changes with the market interest rate. This means that the payments you make every month may go either up or down depending on the market interest rate.

The repo rate, inflation rate, fiscal deficit, and government’s monetary policies are some of the key economic factors affecting a Personal Loan’s floating interest rate.

A floating interest rate can be beneficial if the market interest rate decreases after you take out your loan as it would lower your monthly payments. However, your monthly payments might also increase when the market interest rate increases. 

Floating Personal Loan interest rates can be risky when you don’t know how the market is going to change. Understanding market conditions is important as you could end up in debt if you cannot make the higher monthly payments. 

While considering a loan with a floating interest rate, make sure that you do your research and understand how the markets could affect your loan.

Advantages Of Personal Loan Floating Interest Rate

Favourable Market Conditions

The major advantage of a floating interest rate is that it allows borrowers to pay a lower rate when market conditions are favourable. 

This can save borrowers a large amount of money over the loan tenure, as opposed to a fixed interest rate which would remain the same regardless of market conditions.

Flexible Payments

Another advantage of a floating interest rate is that it can give borrowers the flexibility to make extra payments or prepay their loans. This can be a helpful option for borrowers looking to get ahead on their repayments or who may need extra financial breathing room. 

Refinance Option

Finally, a floating interest rate can also be a good option for borrowers seeking to refinance their loans. 

If market conditions have improved since taking out the loan, borrowers may score a lower rate of interest by refinancing their loan at a floating interest rate product.

Disadvantages of Personal Loan Floating Interest Rate

Unfavourable Market Conditions

The major disadvantage of a Personal Loan with a floating interest rate is that your monthly repayments may be higher if the interest rate goes up. 

This can make it difficult to budget for your loan repayments, and you may pay more overall interest than fixed Personal Loan interest rates.

Negative Budget Planning

When your monthly income stays stagnant compared to the increasing interest rate, you might need to pay higher costs and premiums. These changes may highly affect your budget planning.

Decreasing Purchase Power

Purchasing power is the number of goods and services that can be purchased by an individual. With increased premium and interest costs, the purchasing power of a consumer may decrease. 

When you pay a higher amount toward the Personal Loan interest, it diminishes the money you have to spend on other things.

Uncertain Markets

Interest rates are based on market conditions, which are unpredictable and usually not in anybody’s control. You can check your personal loan interest rate online easily. 

The uncertainty can fluctuate your payment cycle, which might lead to a bad credit rating due to irregular payments.


If you plan to take a Personal Loan, you might be confused about whether a fixed or floating interest rate is best for you. While a fixed interest rate means your monthly repayments will stay the same even if Personal Loan interest rates rise, a floating interest rate means your repayments could decrease or increase according to the markets. 

If you are not sure you can handle the potential fluctuation of a floating interest rate, a Personal Loan with a fixed interest rate is the best option for you. But if you are a risk taker and wish to benefit from the lucrative market, then the floating charge is the best option.  

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