Fixed Rate Loan

What is a Fixed Rate Loan?

A fixed rate loan refers to a loan which has a fixed interest rate.

A loan is normally defined by the principal (the amount), the term (the period of the loan), and the rate (the interest rate). For a fixed rate loan the interest rate remains the same over the term of the loan.

The advantage of a fixed rate loan are that it allows a business to plan its future debt repayments as these do not vary over time, and it safeguards the business against any increases in interest rates over the term.

The disadvantage of a fixed rate loan is that in the event that interest rates fall, the business is left with the higher fixed interest rate until the end of the term unless is pays a penalty to terminate the loan agreement.

For further information on fixed interest loans see the Wikipedia definition.

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Last modified March 23rd, 2016 by Team

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