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Compare variable rate personal loans
Variable rate loans could give you flexibility to help pay off your debt faster — but with the risk of higher costs down the road.
Variable rate personal loans tend to come with lower starting APRs than their fixed-rate counterparts. But as its name suggests, the rate can vary — or change — throughout the term of the loan depending on market conditions. Read on to learn more about how variable rate loans work, what the benefits are and what you’ll want to watch out for.
What do you want to learn about first?
Jump to…How does a variable rate loan work?
With a variable rate loan, the interest rate that you’ll pay will be based on a specified percentage + or – the prime rate. The prime rate is usually based on the Bank of Canada’s overnight lending rate and can fluctuate up or down based on economic conditions.
A variable rate can change over the course of your loan term, and usually starts out cheaper than a fixed interest rate, but can increase and be more costly a few years into your loan term. With a variable rate, your monthly payments will vary if the prime rate fluctuates.
Term length and loan amounts
Term lengths usually sit between one and five years, with some lenders offering terms up to seven or 10 years.
Borrowing amounts typically range anywhere from $500 to $35,000 (or sometimes as high as $50,000 or $100,000). Depending on the lender, you may be able to make early repayments without facing additional fees and charges.
A variable rate personal loan can be either secured or unsecured. Taking out a secured loan means you’ll need to provide collateral in order to “secure” the loan.
Compare personal loans
Finder does not currently have any variable rate loan options available. You may like to consider these fixed-rate personal loans instead.
Should you get a variable rate personal loan?
Why you might consider it:
- Competitive rates. A possible lower starting interest rate is usually what attracts borrowers.
- Potential decrease in rate. When prime rates drop, you’re not locked into a fixed-rate, letting you enjoy lower repayments and a cheaper overall loan cost.
Why you might rule it out:
- Interest rates are unpredictable. As the market fluctuates, so does your interest rate. If interest rates rise, your monthly payment will increase, and the loan may cost you more in the long run.
- Harder to budget for. Variable rate loans are sensitive to economic conditions and the interest rate of your loan will change over the duration of paying it off – making it harder to budget monthly repayments.
How to weigh your options
There are a few factors you should take into consideration when comparing personal loans:
- Repayment flexibility. You should confirm the repayment flexibility of your loan before you apply. Will you be able to make additional payments or pay it off early without facing extra fees?
- Fees and charges. Check upfront and ongoing fees when comparing variable rate loans, as they could significantly increase the cost of your loan.
- Total cost of the loan. You should consider how much the loan will cost in total. This depends on a few factors including how long the loan term is, payment frequency, interest and any other fees that come with the loan. Compare the annual percentage rate (APR) of different loans to get an idea of the true cost.
What is an APR?
The Annual Percentage Rate (APR) incorporates the fees as well as the interest rate to show you the true cost of a loan.
3 costly mistakes to avoid
- Not checking fees and charges. Be sure to ask about any extra charges such as origination, application, early repayment or any other fees.
- Borrowing more than you can repay. Only borrow the amount that you actually need since you’ll be paying interest on the borrowed funds. Defaulting on any kind of loan leads to a negative mark on your credit file and if your loan is secured, you will lose your collateral.
- Extending terms longer than needed. A shorter loan term means you pay less interest — and the loan is ultimately cheaper — so you may want to consider choosing the shortest term that’s manageable on your budget. Some lenders might try to convince you to take a longer loan term and offer lower monthly payments as a selling point – but your loan will cost you more.
What do I need to apply?
Bottom line
While a variable rate loan can save you money over the life of your loan, unexpected increases in the prime rate can send your interest rate far higher than a fixed-rate and ultimately cost you more. Before applying for a variable rate loan, compare your personal loan options to find the right one for your needs.
Frequently asked questions about variable rate loans
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