Fixed Interest Rate

Meaning and Definition

A fixed interest rate refers to an interest rate that remains unchanged throughout the duration of a car finance agreement. The interest rate is predetermined and remains constant, regardless of any fluctuations in the market interest rates. Fixed interest rates provide borrowers with stability and predictable monthly payments over the life of the loan or finance agreement.

Why it is important to know

Understanding fixed interest rates is important as they offer borrowers certainty and ease of budgeting. With a fixed interest rate, the monthly payments remain consistent over the loan term, making it easier to plan and manage finances. It eliminates the uncertainty of fluctuating interest rates and provides a sense of stability in repayment obligations.

Example in car finance

Suppose you secure a car finance agreement with a fixed interest rate of 4% per annum. Regardless of any changes in the broader economy or market interest rates, your interest rate will remain fixed at 4% for the entire loan term. This means that your monthly payments and the total interest paid will remain the same throughout the duration of the car finance agreement, providing predictability and ease of budgeting.