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Compare fixed rate vs. variable rate personal loans
Find out whether you should lock your rate.
As well as choosing a lender, deciding on your loan term and choosing between secured and unsecured, you also have to decide whether you want your rate to be fixed or variable. These two rate options offer different benefits and drawbacks. The guide below will take you through the differences between fixed and variable interest rates and help you decide which option is right for you.
The key differences between fixed and variable interest rates on personal loans
Description | Your rate remains the same throughout the specified term. | Your rate may fluctuate throughout the loan term. |
Main benefit | Your repayments remain the same no matter what’s happening in the market. | Your starting rate is usually lower than that of fixed rate loans and could possibly remain lower. |
What are fixed and variable interest rates on personal loans?
Personal loans come with two types of interest rates: fixed or variable. Fixed interest rates remain the same throughout the specified term, which may be for the entire loan term or for an introductory period. If you opt for a variable rate personal loan, you’ll receive the advertised rate, but this rate may change throughout the loan term depending on interest rate movements in the market.
Compare a range of fixed and variable rate personal loans
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What are the benefits of each interest rate type?
Fixed rate personal loans
- Your repayments remain unchanged throughout the specified term, so you know what to expect.
- You may be able to secure a low rate.
Variable rate personal loans
- The starting rate is usually lower than that of the comparable fixed rate loan.
- It’s possible for the lower interest rate to remain low throughout the term of your loan.
What are the drawbacks of each interest rate type?
Fixed rate personal loans
- The starting rate is usually higher than that of comparable variable rate loans.
Variable rate personal loans
- Your interest rate could increase and make your loan more expensive over time.
- You may find less competitive rates.
Related reading: How to decide between a secured and an unsecured personal loan
How do I work out which rate type is best for me?
The right type of interest rate for you will depend on a few different factors. Here are a couple of questions you can ask yourself to help you decide:
- What interest rate can I get? When you find the most competitive rate, be sure to check the eligibility criteria of that loan to see if you qualify.
- How affordable are the monthly payments? If your repayments are only just working with your budget, a fixed rate loan will ensure they won’t increase.
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