Loans During the Holidays

Many of us already find the holidays to be financially stressful. A holiday loan should be a tool used to allow you to relax and enjoy the holidays

What Is a Fixed Rate Loan?

A fixed-rate loan is a loan with an interest rate that does not change during the term of the loan. These loans are considered to be relatively low-risk because the monthly loan payment stays the same while it is being paid off. When shopping for loans it is important to pay attention to which loans feature a fixed rate as these can save you some stress down the line.

Personal installment loans may have fixed or variable loan rates, however many lenders offer fixed interest rates. In this article we’ll cover fixed interest rates and their benefits when it comes to holiday loans.

What Is a Fixed Interest Rate?

In general, loans come in two forms: fixed and variable. Fixed interest rates are rates that don’t change for the entire term of the loan. If you have a 30 year fixed interest rate mortgage, for example, the interest rate on the loan will stay the same for the entire 30 years, keeping your monthly payments the same.

Variable-rate loans have interest rates that can change over the term of the loan period. These loans can seem enticing at first, often offering lower rates for the beginning of the term, but as the interest rate rises so can your monthly payment, sometimes substantially. If you’re not budgeted correctly for a hike in your monthly payments it becomes possible to fall behind.

Many of us already find the holidays to be financially stressful. A holiday loan should be a tool used to allow you to relax and enjoy the holidays. Choosing a fixed-rate loan can help you maintain that financial leisure throughout the term of your loan.

How Do Fixed-Rate Loans Work?

When you take out a holiday loan with a fixed interest rate your lender sets the interest rate when issuing your loan. With a fixed rate, it remains the same throughout the life of your loan and is not adjusted with the interest rates of the broader economy. Your interest rate depends on many factors including the details of your loan, your finances, and your credit history. Keep in mind, if you need a bad credit loan your interest rate may be higher. Some online sites will advertise no credit check loans, unfortunately, lenders aren’t apt to give loans without performing a credit check. That said, it is usually best to shop around for a lender who will give a fixed-rate loan to individuals who may not have the best credit.

The required monthly payment on your loan will partially depend on your interest rate. A higher interest rate will result in a higher monthly payment as the interest rate is a part of what has to be paid back with the loan. for example, on a 12-month personal loan for $2,500 your monthly payment would be $229.17 with a 10% interest rate. But with a 15% interest rate, the payment would be $239.58 per month.

Fixed loan rates bring your balance to zero at the end of the loan’s term with a flat payment that lasts for a predetermined amount of time.

Fixed Rate Loans Can Buy You Peace Of Mind

Choosing a fixed-rate loan to help ease the financial burden of the holidays may make the following months easier as you pay your loan back. With a fixed-rate loan, your interest rate will not change over time, therefore your monthly payment shouldn’t. Knowing what you’re going to pay allows you to budget correctly and may allow you to pay off your loan before your term ends, shaving off some interest from the end of your loan. And at the very least you can eliminate the risk of payment shock due to rising interest rates. If you’re looking to take out a loan this holiday season, consider looking for a fixed rate loan.