How to decide between fixed or variable interest

At the time of requesting a loan from the bank, it is very important to know the advantages and disadvantages of fixed and variable interest to know what loan to accept. This article can be very helpful if you have plans to request a loan from the bank or you want to renegotiate an existing one. Also, neither of them is perfect, so their knowledge can be very useful to know which one to choose. In .com we tell you everything related to the two interest rates and how to decide between a fixed interest or a variable interest .

What is fixed interest?

When talking about a fixed interest rate, we talk about an interest rate that does not change during the life of the loan. Therefore, you will never pay more interest than originally planned.

When is it better?

Fixed interest will always be better than the variable in situations in which expectations of a rise in interest rates are high. Also, they will also be better when the loan term is smaller . Finally, another favorable situation for fixed interest is when the fear of the contractor's risk is high.

What is variable interest?

When talking about variable interest, reference is made to an interest rate that varies the value according to market valuation (Euribor) plus a differential. Therefore, the interest payable on a loan may vary from what was originally planned. In these cases, the interest rate of the loan is reviewed periodically and its trajectory is the result of the evolution of the market during the period of amortization.

When is it better?

Variable interest will be better when there are situations such as those in which a decrease in interest rates is expected, causing a decrease in the quota. Another favorable situation for variable interest rates would be when the loan is long-term .

What are the risks?

It is evident that in the case of fixed interest the risk is practically non-existent . In the case of variable interest, the risk is much higher, since if the market interest rate rises, they will have to pay more interest than anticipated. Therefore, in these cases, it would be advisable to check that you can pay the installments without difficulty and that we have room to assume possible increases without representing excessive inconvenience.

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