> Fixed Rate Loan - UK Guide
In a nutshell
A loan that is paid back at a fixed rate of interest.
Best Loan for
People that wish to know exactly what their loan repayments will be across the life of their loan.
There is no real industry average for borrowings on fixed rate loans. What you can borrow will, to a large extent, depend on your own incomings and outgoings (i.e. how much you have spare each month to use to repay a loan). Amounts will also vary between lenders - so you could go as low as a few hundred pounds right up to £100,000+. The amount you're actually allowed will also depend on the type of loan you take out (for example, whether you take out a secured or unsecured product).
Typical loan periods vary between 1-25 years depending on your chosen lender, how much you need to borrow and the type of loan you want.
The main advantage here is the security of the fixed rates element of your loan. With a fixed rate loan you'll know exactly how much you'll be repaying each and every month so you'll be able to budget accurately. And, if interest rates rise above your rate, then you'll be saving some extra money into the bargain.
What to look out for
Issues arise with fixed rate loans if the opposite happens and interest rates fall. Then, if you've tied yourself to a fixed rate, you'll simply be making repayments that are higher than they could have been. So, a fixed rate deal can often cost more than a variable rate one. As with any loan you need to be careful that your fixed rate deal gives you as much flexibility as possible. You may well find that many lenders will tie you into early redemption or excess repayment fees with their fixed rate loans products - an ideal loan won't charge you if you want to pay back your loan off early or make the occasional extra payment to it. Plus, it may give other benefits such as repayment holidays into the bargain. If you take out a secured fixed rate loan (where you use your property as a guarantee) then you run the risk of losing your home if you don't keep up with your repayments. If this would be a worry to you, then you can take out additional payment protection insurance - however this will add to your overall premium costs.
If you really do want/need fixed rates, then this is the best kind of loan for you.