floating interest
Also called: suku bunga floating
A loan interest rate that can rise or fall following the lender's policy.
What it means
Floating interest is a loan interest rate that can change during the credit period. Changes follow market conditions or the lender's policy, so the installment is not always the same until the loan is paid off. In Indonesia, floating interest is commonly used on home ownership loans after the fixed interest period ends.
Why it matters for families
This term matters because a family's installment can rise midway, not only fall. If a family assumes the initial installment will stay the same until paid off, the monthly budget can break when interest rises. It is best to leave room in the budget for a possible installment increase.
Example
For example, a family takes a Rp500 million home loan with fixed interest for two years, then switches to floating interest. If interest rises from 8 percent to 11 percent per year, the monthly installment can increase quite a lot. The family needs to recalculate repayment ability assuming higher interest.
Common misunderstanding
Many people think floating interest can only go down. In reality interest can rise, so the installment increases and this needs to be anticipated.