Interest is a percentage calculated on the amount of credit made available by the financial institution.
The interest rate is fixed when the contract is signed.
Depending on the type of loan, it can be of two types:
- fixed: the fixed rate is an interest rate that does not vary throughout the duration of the loan,
- variable: the variable rate is an interest rate which can vary according to an index chosen by your lender (upwards or downwards).
There are two types of rate: the fixed rate and the variable (or revisable) rate
Advantages of the Fixed Rate:
- the fixed rate gives you some security.
- you do not have any surprises since the interest rate is fixed at the signing of the contract (credit offer).
- you can manage your budget more efficiently.
Disadvantages of the Fixed Rate:
- you do not benefit from any rate cuts like the variable rate.
- you risk paying high interest compared to market conditions.
- you have the possibility of carrying out an early repayment, but this will generate a penalty which can go up to 3% of the outstanding capital.
- Variable or adjustable rate: the interest calculation rate will vary according to an index chosen by your lender
Possible Variable Rate options:
- convertible loan: possible change from a variable rate to a fixed rate during repayment of the credit, without penalty.
- “tunnel” rate: the possible variation in rate is limited within a range fixed at the signing of credit contracts (credit offer).
- ceiling rate: only the possible increase in the rate is limited
Advantages of the Variable Rate:
- you automatically benefit from any subsequent rate cuts (possibly limited by options)
Disadvantages of the Variable Rate:
- you automatically undergo any subsequent rate increases (limited by the options),
- you do not know the amount of your future withdrawals,
- there are multiple reference rates and indexation methods are often complex to follow.
Other definitions of the lexicon starting with the letter T:
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