What Is a Flat Interest Rate?

The fixed interest rate is stipulated by the state and is a kind of interest rate that is not affected by changes in the average social profit rate and the supply and demand of funds within a certain period of time. The interest rate specified in the loan contract that will not change throughout the loan period. In a loan business of more than one year, the loan contract often requires the calculation of interest by a standard of interest rates agreed by both borrowers and lenders, which is called the fixed interest rate of the loan. For example, international medium- and long-term export credits are calculated at the uniform interest rate stipulated by the Organization for Economic Cooperation and Development at the time of signing the contract. ^[1]

Fixed interest rate

The fixed interest rate is stipulated by the state and is a kind of interest rate that is not affected by changes in the average social profit rate and the supply and demand of funds within a certain period of time. The interest rate specified in the loan contract that will not change throughout the loan period. In a loan business of more than one year, the loan contract often requires the calculation of interest by a standard of interest rates agreed by both borrowers and lenders, which is called the fixed interest rate of the loan. For example, international medium- and long-term export credits are calculated at the uniform interest rate stipulated by the Organization for Economic Cooperation and Development at the time of signing the contract. ^[1]

For example, China Everbright Bank Nanjing Branch has introduced four types of interest rate grades for " fixed interest rate housing loans ". China Merchants Bank has six types of structured fixed rate products, and some of them can implement different interest rate standards in stages. Like 5 years

Divided according to whether the interest rate level changes during the duration of the currency loan relationship, interest rates can be divided into fixed interest rates and floating interest rates.

Fixed interest rate refers to the interest rate that does not adjust with changes in prices or other factors during the entire borrowing period. Under the background of stable prices, fixed interest rates make it easy for both borrowers and lenders to perform economic accounting, and can provide microeconomic entities with more certain financing cost expectations. But if there is severe inflation, fixed interest rates are good for borrowers and not good for lenders.

1. Higher interest rates can lock in the cost of borrowing;

2. No longer affected by changes in overall interest rates. Maintain a fixed interest rate for a period of time.

1. Locking interest rate risk: assist companies to lock in long-term capital costs, avoid rising interest rates, and make it easy for companies to estimate future capital costs.

2. Long-term liabilities that can be listed: If the bank guarantee contract is guaranteed for more than one year, it can be included in long-term liabilities, but if the bank guarantee is within one year, the accountant may have different views.

3. Low financing cost: Compared with long-term loans such as joint loan, it can help customers to raise funds at a lower cost.

4. Simple procedures: Can replace corporate bonds, and does not require the preparation of public instructions and complicated procedures such as the approval of the certificate meeting.

Both fixed and floating interest rates have their advantages and disadvantages.

Fixed interest rates are convenient for borrowers to calculate costs. Floating interest rates can reduce the risk of market changes, but are not convenient for calculating and predicting benefits and costs.