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How Fixed Interest Rates Work
By John Mussi, Thu Dec 8th

Interest rates are an important part of any loan or credit line.The interest rate that you have on your loan, credit card, orother credit line can seriously affect the total amount that youpay toward repayment; after all, that's how lenders make theirmoney.

All interest rates are not the same, however... some rates willfluctuate over time as local and national interest rates change,whereas others are set at a certain level and remain at thatlevel until the loan or credit line is repaid in full.

Below you'll find information on the latter type, which areknown as fixed interest rates.


Defining Fixed Interest Rates

A fixed interest rate is one that remains at a specific rateregardless of the increases and decreases of interest rateslocally and nationally. This means that if an interest rate isfixed at 10%, it will remain at 10% until the loan or creditline has been paid off whether other rates increase to 20% ordrop down to 5%.

These rates are sometimes offered for an introductory period toadd security to a new loan or credit card, after which theinterest rate reverts to a variable rate meaning that itfluctuates with the increases and decreases of other rates.

Advantages of Fixed Interest Rates

Obviously,

the main advantage of a fixed interest rate is thatyou can guarantee your interest rate against future increases.This is especially useful in situations where you find aparticularly good interest rate and manage to lock it in as afixed rate. No matter what increases come while you're makingyour payments, you still maintain your good interest rate.

Another advantage of a fixed interest rate is the fact thatfixed rates that are used in a promotional manner (as in thecase of introductory rates and the like) are usuallysignificantly lower than other rates that are available.

Even though introductory fixed rates expire after a time(usually 6 months or 1 year), you still save money on yourpayments during this time and can take advantage of this to tryto get ahead on your payments so that you have fewer payments tomake at a higher rate.

Disadvantages of Fixed Interest Rates

Of course, fixed interest rates aren't without theirdisadvantages. The major disadvantage of fixed rates is the factthat when interest rates drop below the rate that you arepaying, you still have to pay the higher rate.

This can be particularly troublesome in the case of mortgages orautomotive financing, since interest rates can drop and remainlow for relatively long periods of time... meaning that you'rehaving to pay the higher rate until the variable rates riseagain.

Another disadvantage is that when promotional rates end there isusually a much higher variable rate that has to be paid,resulting in a sudden increase in your monthly payment that youmight not be expecting... after all, you've been paying thelower rate for a while, and you might have gotten used to thepayments.

Common Places to Find Fixed Interest Rates

Fixed interest rates can appear in a variety of places, rangingfrom automotive financing and mortgage loans to debtconsolidation and homeowner loans. They are often used as anintroductory rate for automotive financing and credit cards,though some mortgage lenders use them in a promotional manner aswell.

The availability of fixed interest rates depends upon theindividual lender, so be sure to look into whether they areoffered or not before expecting to receive one.

You may freely reprint this article provided the followingauthor's biography (including the live URL link) remains intact:

About the author:John Mussi is the founder of Direct Online Loans who helphomeowners find the best available loans via the www.directonlineloans.co.uk website.


We strive to provide only quality articles, so if there is a specific topic related to consolidation direct loan student that you would like us to cover, please contact us at any time.

And again, thank you to those contributing daily to our consolidation direct loan student website.

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