Fixed vs Floating Rate Personal Loan
Why most personal loans are fixed-rate, when a floating rate helps, and how it changes prepayment charges.
Updated 27 September 2026 · 8 lenders trackedWhat you need to know
Most personal loans in India carry a fixed rate — ICICI Bank’s, for example, is fixed for the whole tenure. A few banks, notably Bank of Baroda, also offer floating rates linked to their repo-based lending rate. The choice matters for two reasons: a floating EMI moves with RBI’s repo rate, and RBI bars prepayment charges only on floating-rate loans to individuals.
Fixed vs floating compared
| Point | Fixed rate | Floating rate |
|---|---|---|
| EMI | Same for the whole tenure | Changes (or tenure changes) when the benchmark moves |
| Benefit from repo cuts | No | Yes — at the next reset |
| Risk if rates rise | None | EMI or tenure goes up |
| Prepayment / foreclosure charge | Allowed — typically 2% – 5% + GST | Not allowed for individuals (non-business) |
| Examples | ICICI Bank (fixed for tenure), most private banks | Bank of Baroda (BRLLR 7.90% + spread) |
Your rights on a floating-rate loan (RBI, Aug 2023)
- At sanction you must be told how the benchmark affects your EMI and tenure.
- At a reset you can choose a higher EMI, a longer tenure (without negative amortisation), a combination, or a switch to fixed rate per the lender’s policy.
- You may prepay in part or full at any time.
- You receive quarterly statements showing principal and interest recovered, EMI, instalments left and the APR.
Which to choose
- Fixed: budget certainty; no surprise if rates rise
- Floating: gains when repo falls; free prepayment and foreclosure
- Fixed: foreclosure charge if you close early; stuck at old rate if rates fall
- Floating: EMI can rise; few lenders offer it for personal loans
Frequently asked questions
Which is better when the repo rate is 5.25%?
The repo rate is already down 1.25 percentage points from early 2025, so further cuts are uncertain. Pick floating mainly if you plan to prepay or foreclose early, since it carries no charge; pick fixed if EMI certainty matters more.
Can I switch from fixed to floating later?
Only through the lender’s own conversion policy (if any) or by transferring the loan, which may trigger a foreclosure charge on the fixed loan.
For information and comparison only. Loan terms, rates and rules change — confirm with the lender and read the Key Facts Statement before borrowing.