fixed interest
Also called: suku bunga fixed
A loan interest rate that does not change for a certain period.
What it means
Fixed interest is a loan interest rate that does not change for a certain period as agreed. The principal and interest installment amounts are easier to predict than with floating interest. In Indonesia, home and vehicle loans often offer fixed interest in the early years.
Why it matters for families
Fixed interest helps a family plan a budget because the installment does not change during the applicable period. However, after the fixed period ends, the interest may switch to floating and the installment may rise. A family needs to know how long the fixed period lasts and the installment scenario afterward before taking credit.
Example
For example, a family takes a home loan with fixed interest for the first three years. They calculate the budget based on that fixed installment, then set aside room in the budget in case interest changes afterward. An installment increase assumption is used to test repayment ability.
Common misunderstanding
Many people assume fixed interest applies until the loan is paid off. The correction: fixed interest is usually only for a certain period, after which it can change according to the agreement terms.