Key takeaway
Understand the difference between fixed and floating rates and when to choose each.
What is the difference between fixed and floating interest rates?
| Feature | Fixed rate | Floating rate |
|---|---|---|
| EMI | Stays the same | Changes with benchmark |
| Starting rate | Usually higher | Usually lower |
| Prepayment charges (individuals) | May apply | Not allowed for non-business loans as per RBI |
| Best when | Rates are expected to rise | Rates are stable or falling |
What is an external benchmark-linked rate?
Most new floating-rate retail loans from banks are linked to an external benchmark such as the RBI repo rate. When the benchmark changes, your rate changes at the next reset.
Frequently asked questions
Yes. RBI rules require lenders to offer borrowers the option to switch between fixed and floating rates at the time of reset, subject to charges disclosed by the lender.
Sources & editorial policy
Content is researched from official sources such as the Reserve Bank of India (RBI), credit bureaus and lender websites, and reviewed periodically. Rates and charges change often – always confirm the latest terms with the lender.