What is interest rate risk?

Published: 12/4/2018
Get informed about how to avoid interest rate risk

Interest rate risk means the risk of a rise or fall in interest rates that may lead to an increase in loan instalment or annuity. It occurs in periods of negotiated variable interest rate. Where a variable interest rate has been negotiated for the entire period, the consumer is exposed to interest rate risk throughout the duration of the loan agreement. Where a combined interest rate has been negotiated for a loan, which implies a period of fixed interest rate and a period of variable interest rate, the consumer is exposed to interest rate risk in the period in which a variable interest rate is used. Interest rate risk can be avoided by negotiating a fixed interest rate throughout the duration of the loan agreement.

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