Variable rate personal loans tend to come with lower starting APRs than their fixed rate counterparts. As its name suggests, the rate can vary — or change — throughout the term of the loan. Read our guide to learn more about how these loans work, what the benefits are and what you’ll want to watch out for before you take one out.
With a variable rate loan, an interest rate will initially be applied to your loan, however this rate can change over the course of your loan term. The rate can either go up or down depending on market fluctuations. Your loan agreement will specify the maximum cap APR.
A variable rate personal loan can be either secured or unsecured and can have term lengths between one and ten years, with a borrowing amount ranging anywhere from $1,000 to $35,000 (and sometimes higher).
Depending on the lender, you may be able to make early repayments without facing additional fees and charges.
Should you get a variable rate personal loan?
Why you might consider it:
Competitive rates. Its lower starting interest rate is usually what attracts borrowers.
Potential decrease in rate. When interest rates drop, you’re not locked into a fixed interest rate, letting you enjoy lower repayments and a cheaper overall loan cost.
Lower fees. Origination and administration fees and charges are usually lower than on fixed rate loans — keeping your overall loan cost down.
Why you might rule it out:
Interest rates are unpredictable. As the market fluctuates, so does your loan 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 interest 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 repayments month-to-month.
Compare more personal loans from top lenders
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 add up if you’re not careful.
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, repayment 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 total 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 the 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 amount you borrow. 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 terms that are 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.
What do I need to apply?
Eligibility criteria can differ between lenders, however you’ll usually need to meet the following requirements:
Be at least 18 years of age, or the age of majority in your province or territory
Be a Canadian citizen or a permanent resident with a valid Canadian address
Have a regular source of income
Meet any credit score requirements
Meet any minimum income requirements
You’ll typically need to submit the following information in order to apply:
Submit your personal information
Show proof of identification
Provide employment history
Provide your banking details
Proof of rent or mortgage payments
Applying for a variable rate loan can take just minutes, since most lenders have a speedy online approval process. Having the above information on hand can speed up and streamline the process.
Frequently asked questions about variable rate loans
Variable rate loans have interest rates that can change throughout the loan term, while fixed rate loans have interest rates that remain the same throughout the loan term.
Your interest rate moves with the benchmark interest rate of the market. Changes to the rates usually take place every three months. Your interest rate will directly affect your repayments, so take that into consideration when shopping for a variable rate personal loan.
A fixed rate loan ensures that the borrower will be locked into one set rate for the duration of the loan. Each month, your loan repayment amount will be the same. This is a safe bet if you’re worried about the market fluctuating, however if market rates significantly drop and variable interest rates lower, you’ll still be locked into the rate you agreed upon.
Kyle Morgan is a producer for finder.com who has worked for the USA Today network and Relix magazine, among other publications. He can be found writing about everything from the latest car loan stats to tips on saving money when traveling overseas. He lives in Asbury Park, where he loves exploring new places and sipping on hoppy beer. Oh, and he doesn't discriminate against buffalo wings — grilled or fried are just fine.
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.