How APR Works and the differences between Fixed APR vs Variable APR

Personal Loans are prevalent these days. Different rates regarding interest are imposed by different commercial banks these days. These rates fluctuate due to numerous factors. Most personal loans impose interest monthly, and some even impose this interest weekly. 

When we talk of APR, the total interest rate that an individual will have to pay the bank over a year is the annual percentage rate.

Fixed Vs Variable Annual Percentage Rate 
A fixed APR is one that has its rate constant, and it doesn't vary from a change in the index. On the other hand, a variable APR is one that will vary with the change in the interest index rate.

Which is better?
This is a complicated decision to make. When we talk of NBFC Growth in India, the variable Annual Percentage Rate was given preference by most people. To understand this concept, one must be aware of the different benefits of this different APRs.

Benefits of a Fixed APR
Such an Annual Percentage Rate can give numerous benefits as mentioned-

• It is a safer option as there is no dependence on fluctuations.
• You can also get a fixed amount at the start of the year.
• It is more practical and does not depend on the market.
• The investment is less risky and comes with easy payment methods.

Benefits of variable APR
Variable APR also has numerous benefits-

• Since it depends on the change of rates when the rates drop, you can save money.
• It is preferred for people who are looking to save interest.
• The banks also prefer it.

In recent times people are switching from variable to fixed APR. The main problem out there is the sudden rise in interest these days, making variable APR very risky. 

Read Also: How do you calculate annual percentage rate?