A fixed interest rate is attractive to borrowers and lenders who don’t want their interest rates fluctuating over the term of their loans
The interest rate on a fixed-rate loan remains the same during the life of the loan for an individual borrower. Because the borrower's payments stay the same, it's easier to budget for the borrower and you are not exposed to fluctuating rates. As a lender you receive a predictable income and interest.
There is an ability by the lender to change the fee later on to make sure it is still appealing to borrowers. This change would not affect people whom borrowed prior to the rate change. Once you borrow, your interest rate is locked in to whatever you agreed upon at the time of transaction.
Calculating fixed interest costs for a loan is relatively simple. You just need to know:
- The loan amount
- The interest rate
- The loan repayment period
Example: Loan amount = $1,000; Term Interest Rate = 1%; One month time term $1,000 x 1% = $10 in interest owed for the one month term