In the choice of loan methods, it often involves the difficult problem of choosing floating interest rate or fixed interest rate. Some people say that floating interest rates are good, while others say that fixed interest rates are good. What is the fundamental difference between floating interest rate and fixed interest rate?

Their differences are mainly reflected in the following aspects:

1, essential difference

Floating interest rate refers to the interest rate that is adjusted accordingly with the change of price or other factors during the loan period.

The fixed interest rate is stipulated by the state, which is not affected by the average social profit rate and the change of capital supply and demand in a certain period of time.

2. Differences in interest rates

Based on the interest rate determined when establishing the loan relationship, the floating interest rate can be adjusted during the loan period.

The fixed interest rate will not be adjusted during the loan period.

3. Advantages and disadvantages of floating interest rate and fixed interest rate.

Advantages and disadvantages of floating interest rate: floating interest rate provides investors and financiers with the possibility of managing interest rate risk, which is more detailed in accounting, but also more complicated and eliminates interest rate risk. Since the 1970s, floating interest rates have been adopted more and more, especially in the lending activities of enterprises, because the fluctuation range and frequency of interest rates around the world have greatly increased. The loan interest rate of enterprises in China is now a floating interest rate method, and the interest rate is approved once a year.

Advantages and disadvantages of fixed interest rate: fixed interest rate is simple and convenient in accounting, which is convenient for both investors and financiers to plan funds. But for long-term borrowers and borrowers, the risk is greater. In terms of financing, the risk of falling interest rate, for financiers with fixed interest rate, if the interest rate falls after the loan relationship is determined, the financing cost will be high. In terms of investment, there is a risk of rising interest rates, because if the interest rate rises after the loan relationship is determined, for investors with fixed interest rates, it means that funds are occupied in low-yield assets.