Fixed Rate Guarantor Loans – any loan, from a traditional financial institution like a bank or a private lender who is not regulated by the banking norms, will incur a rate of interest. There are two types of interest rates, simple and compound.
Banks usually don’t charge compound interests unless there is a special financial product under distinct or unique circumstances. Private lenders too don’t charge compound interest but there are exceptions.
There are two more types of rates that the lenders use, adjustable or variable and fixed. As the names imply, variable or adjustable rates of interest would change from time to time.
Six months you could be paying ‘1x’ and then one year you could be paying ‘1.5x’. There are instances when rates keep changing from month to month, albeit rare.
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A fixed rate guarantor loan wouldn’t have any fluctuation in the rate of interest. The rate would remain constant throughout the repayment period.
It doesn’t matter what happens to the economy, lender, to you or to your loan, the rate would not change. There could be penalties, the term could get revised, you could get another loan or pay off the loan before the term is up.
None of it would impact the rate of interest. With variable or adjustable rate of interest, that is not the case.
What is known as the APR or annual percentage rate is what the lender would charge you on the loan amount in a year. Adjustable or variable rates exist for a reason.
Lenders will reduce the rates when the interest rates are reduced by the central bank. Lenders will increase the rate of interest levied on you when the central bank does it for them.
Private Lenders Guarantor Loans
Interestingly, private lenders don’t get any money from the central bank or any such regulated autonomous authority. Hence, when we talk about adjustable or fixed-rate guarantor loans, the rates don’t have to vary depending on what the central bank does.
There could be a bearing of the micro and macroeconomic scenario but the banking regulations don’t apply. In other words, when you don’t get a fixed rate guarantor loan or are being offered variable rates, you are just giving in to the possibility that the lender can change the rate to suit their whims and fancies.
You would have no say and you can have a perpetually increasing rate of interest throughout your term. You would be tempted with the possibility of a reduction of rate in the future but that shouldn’t propel you to shun fixed rate guarantor loans.