Are Personal Loan Interest Rates Fixed or Variable? What Is the Difference?
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What is a Fixed Rate Personal Loan?
How a Fixed Rate Loan Works
What Is a Variable Rate Personal Loan?
How a Variable Rate Loan Works
Pros and Cons of Fixed and Variable Rate Loans
Pros of Fixed Rate Loans
Cons of Fixed Rate Loans
Pros of Variable Rate Loans
Cons of Variable Rate Loans
Weighing Which Type of Loan Is Best for You
When a Fixed Rate Loan Can Be a Good Idea
You don’t like surprises. A fixed rate loan is predictable. You’ll know from the start what your interest rate is, what your monthly payment will be, and how much you’ll pay in interest over the life of the loan. You don’t want to stress about what’s happening to interest rates. Your payments will remain the same no matter what’s happening with the economy or economic policy. You plan on going with a longer loan term. The longer your repayment period, the more likely it is that interest rates could fluctuate during that time. If you’re thinking about a five- to 10-year personal loan, a fixed rate may make more sense. Interest rates seem to be heading upward. In a rising interest rate environment, it could make sense to go with a more reliable fixed rate loan.
When a Variable Rate Loan Can Be a Good Idea
You can afford to take a risk. The lower rate you’re likely to be offered with a variable rate loan is a reward for taking a chance that the rate could increase. If you have a flexible budget and can afford to make higher payments should rates increase during the loan term, you might decide it’s worth rolling the dice. You’re looking for the lowest rate possible. Who doesn’t like a bargain?If you’re looking for the lowest rate out there (or, at least, the lowest rate for which you can qualify), it’s likely you’ll find the initial rates for variable rate loans are lower. The question is, will the variable rate remain a sweet deal? That may depend on how low the starting rate is compared to current fixed rates, and if the rate rises, how quickly and how much it rises. You’re planning on a shorter loan term. If you expect to pay off your loan quickly — within two to five years — you may not be significantly affected if rates rise a bit. Interest rates seem to be heading downward. If you believe rates will drop during your personal loan repayment period, you might choose to consider a variable rate loan.
Fixed Rate vs. Variable Rate Personal Loans at a Glance
Compare Personal Loan Options
Frequently Asked Questions
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