What Is an Interest Rate?

In simple terms, an interest rate is the cost of borrowing money. When you take a loan, you repay the amount you borrowed (principal) along with an additional percentage — that’s the interest.
It’s how financial institutions earn for lending money, and it compensates for the risk they take.

Fixed vs. Floating Interest Rates

Understanding the type of interest rate helps you plan your repayments better.

• Fixed Interest Rate:
  The rate remains the same throughout the loan tenure. Your EMI (monthly payment) stays constant, making budgeting easy.
  
  

• Floating Interest Rate:
  The rate changes based on market conditions. Your EMI may increase or decrease depending on interest rate movements.
  
  

Both have pros and cons — fixed rates give stability, while floating rates can be beneficial when market rates go down.

Factors That Affect Interest Rates

Interest rates aren’t random — they depend on several factors like:

• Type of Loan: Personal, business, or vehicle loans have different rates.
  

• Loan Tenure: Shorter tenures often have lower rates.
  

• Credit Score: A good repayment record can earn you better interest rates.
  

• Market Conditions: RBI policies and economic trends can influence rates.
  
  

Why a Lower Rate Isn’t Always the Best Option

While a low interest rate looks attractive, it’s important to check for processing fees, prepayment charges, or hidden costs. Sometimes a slightly higher rate from a transparent lender like Sri Sai Finance may turn out more economical and trustworthy in the long run.

How to Choose the Right Loan

Before finalizing a loan, always:

• Compare interest rates and total repayment amount.
  

• Understand the terms and conditions clearly.