Fixed VS Variable Loan Rate

There are various types of loans that exist on the market. They are all designed for different needs of clients; banks use them for attracting more people who need money. One of the criteria that could separate different kinds of loans is the type of a loan rate. It could be fixed or variable, depending on the loan product we are talking about. In this article, we would like to familiarize you with both of these definitions.

Fixed rate

So, let’s start with the fixed rate. This type of rate is such a rate that doesn’t change the life of a loan. It means that a borrower pays the exact same amount of money for all the time. This results in the fact that you may calculate the total sum of money that you are going to spend on this loan easily, multiplying the monthly payment rate and the term of your loan. You may face fixed rates when you get your auto loan, a student loan, a mortgage, etc.

Variable rate

Opposed to the fixed rate which doesn’t change, the variable rate may fluctuate with time. That’s the reason why they are called ‘the floating rates’. They mean that you pay the interests of your loan first; then the total sum of your debt changes.

The variable rates work much more difficult than the fixed ones. The rate of this type of loan changes during its life, what means that you pay different amounts of money. However, if you are able to pay more from the very beginning of your loan life, you will pay less in total. So, the variable rate loans may be better than the fixed ones.