What is a variable rate loan? Should I opt for variable rate loan?
Ans.: A variable rate is one where the rate charged by the HFI on your loan keeps changing with respect to the rates in the market over the tenure of the loan. Typically, the rate charged by the HFI is on the basis of their cost of funds and the prevailing market rates. These rates change periodically. Accordingly the tenure increases or decreases or alternatively the EMI increases or decreases based on whether the rates move upwards or downwards. Every HFI decides whether to change the rate of interest or change the tenure at the time of sanction. It is advisable to go in for the Variable rate if you feel that the interest rates have reached its peak and can only go downwards.
