LoansFinancial Glossary
Fixed Rate Loan
Definition
A loan where the interest rate remains constant throughout the agreed period, regardless of changes in the repo rate or other benchmarks. In India, truly fixed-rate home loans are rare — most are fixed only for 2-5 years before converting to floating. Personal loans and some car loans are often truly fixed rate.
Why It Matters
Fixed rates offer EMI predictability but usually come at a premium of 0.5-2% over floating rates. On a 20-year home loan, this premium translates to lakhs in extra interest. Fixed-rate loans also carry prepayment penalties (up to 2-3%), unlike floating-rate loans where RBI prohibits prepayment charges.