Short Term Loans Donít Have Floating Interests

Created: 2016-11-22 07:00:00

There are two types of interests that lenders charge. This is applicable for banks, traditional financial institutions and private lenders. Even sharks can have two types of interests. One is fixed and the other is floating. The latter is often called adjustable rate of interest. The difference is quite simple. A fixed rate of interest will remain unchanged throughout the term of the loan or a part of the repayment term. If the rate is supposed to change after, say three or five years, that will be mentioned explicitly in the terms and conditions or the agreement.

Adjustable or floating rates of interest are fluctuating. They may go up or down depending on the prevailing rates of interest, which is primarily influenced by the repo rate or the rate of interest at which the central bank lends money to banks and others. Private lenders don’t depend on the repo rate because they are nonbanking firms. It is only banks and whoever borrows from the central bank that would depend on the central lending rate and accordingly charge a rate of interest when they lend.

When you opt for short term loans or smart loans in UK, you would not have to choose between fixed and floating rates of interest. Unsecured or even secured short term loans don’t have such fluctuating rates. The term is not long enough to justify a floating rate. Home loans or mortgages would almost always have the choice between floating and fixed rates. The terms are longer, the loan amounts are much larger and there are many finer aspects of the loan. Short term loans are simpler, for smaller loan amounts and there is very little complication.

When you apply for short term loans in UK, do not buy claims from lenders that the rate is floating and hence you may save money when the rate dips. In all likelihood, you would keep paying a higher rate. Fixed rate is the safer option.

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