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When applying for a loan or mortgage, you may come across the terms fixed charge and floating charge. These are forms of security that lenders take over a borrower’s assets to reduce risk in case of non-payment.
If you’re taking out a home loan, business loan, or secured credit facility, understanding the difference between fixed and floating charges is essential. Choosing the right one could impact your financial flexibility and risk exposure.
A fixed charge is a security interest attached to a specific asset that cannot be sold or transferred without the lender’s consent. The asset remains locked in place until the loan is repaid.
💡 Examples of assets subject to fixed charges:
✅ Property or real estate (e.g., Loan, Cash, CDS, Portfolio)
✅ Vehicles financed through a car loan
✅ Machinery or equipment used in business
🔹 Key benefits of fixed charges:
✅ Lower interest rates – since the lender has high security over a specific asset, they may offer better loan terms.
✅ Stability – fixed charges provide certainty over the asset’s security.
✅ Easier loan approval – lenders are more willing to finance secured assets.
🔹 Potential drawbacks:
⚠️ Limited flexibility – you cannot sell or use the asset freely without the lender’s approval.
⚠️ Higher risk of repossession – if payments are not met, the lender can seize the asset to recover their money.
📌 Best for: Mortgages, business loans with heavy equipment, car loans.
A floating charge is a security interest over a group of assets that can change over time. Unlike a fixed charge, assets under a floating charge can be used, sold, or replaced by the borrower in the normal course of business.
💡 Examples of floating charge assets:
✅ Business inventory and stock
✅ Accounts receivable (money owed to a company)
✅ Cash flow and working capital
🔹 Key benefits of floating charges:
✅ More flexibility – businesses can buy, sell, and trade assets as needed.
✅ Covers multiple assets – useful for securing broad categories of property.
🔹 Potential drawbacks:
⚠️ Higher interest rates – lenders take more risk as the assets securing the loan change over time.
⚠️ Risk of crystallisation – if a borrower defaults or goes into liquidation, the floating charge becomes fixed, meaning assets can be seized.
📌 Best for: Business loans, working capital financing, lines of credit.
Factor | Fixed Charge | Floating Charge |
Best suited for | Mortgages, car loans, business loans with property or equipment | Business loans, inventory financing, revolving credit |
Flexibility | Low – assets cannot be sold without permission | High – assets can be bought, sold, or replaced |
Interest rates | Lower | Higher |
Lender security | High – specific assets are pledged | Moderate – assets are changeable |
Risk to borrower | Repossession of pledged asset | Crystallisation in case of default |
✔ Choose a fixed charge if you want lower interest rates and are pledging a high-value asset like a home or vehicle.
✔ Choose a floating charge if you need flexibility, especially for business purposes.
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When applying for a loan or mortgage, you may come across the terms fixed charge and floating charge. These are forms of security that lenders take over a borrower’s assets to reduce risk in case of non-payment.
If you’re taking out a home loan, business loan, or secured credit facility, understanding the difference between fixed and floating charges is essential. Choosing the right one could impact your financial flexibility and risk exposure.
A fixed charge is a security interest attached to a specific asset that cannot be sold or transferred without the lender’s consent. The asset remains locked in place until the loan is repaid.
💡 Examples of assets subject to fixed charges:
✅ Property or real estate (e.g., Loan, Cash, CDS, Portfolio)
✅ Vehicles financed through a car loan
✅ Machinery or equipment used in business
🔹 Key benefits of fixed charges:
✅ Lower interest rates – since the lender has high security over a specific asset, they may offer better loan terms.
✅ Stability – fixed charges provide certainty over the asset’s security.
✅ Easier loan approval – lenders are more willing to finance secured assets.
🔹 Potential drawbacks:
⚠️ Limited flexibility – you cannot sell or use the asset freely without the lender’s approval.
⚠️ Higher risk of repossession – if payments are not met, the lender can seize the asset to recover their money.
📌 Best for: Mortgages, business loans with heavy equipment, car loans.
A floating charge is a security interest over a group of assets that can change over time. Unlike a fixed charge, assets under a floating charge can be used, sold, or replaced by the borrower in the normal course of business.
💡 Examples of floating charge assets:
✅ Business inventory and stock
✅ Accounts receivable (money owed to a company)
✅ Cash flow and working capital
🔹 Key benefits of floating charges:
✅ More flexibility – businesses can buy, sell, and trade assets as needed.
✅ Covers multiple assets – useful for securing broad categories of property.
🔹 Potential drawbacks:
⚠️ Higher interest rates – lenders take more risk as the assets securing the loan change over time.
⚠️ Risk of crystallisation – if a borrower defaults or goes into liquidation, the floating charge becomes fixed, meaning assets can be seized.
📌 Best for: Business loans, working capital financing, lines of credit.
Factor | Fixed Charge | Floating Charge |
Best suited for | Mortgages, car loans, business loans with property or equipment | Business loans, inventory financing, revolving credit |
Flexibility | Low – assets cannot be sold without permission | High – assets can be bought, sold, or replaced |
Interest rates | Lower | Higher |
Lender security | High – specific assets are pledged | Moderate – assets are changeable |
Risk to borrower | Repossession of pledged asset | Crystallisation in case of default |
✔ Choose a fixed charge if you want lower interest rates and are pledging a high-value asset like a home or vehicle.
✔ Choose a floating charge if you need flexibility, especially for business purposes.
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