Taking out a loan should involve extensive research and comparisons between different options. When considering loan interest rates, you can choose between two options: fixed and variable-rate loans. 

Both options have positives and negatives, and deciding which loan to take out depends on the borrower’s preferences, credit history, and other factors.

What Is a Fixed-Rate Loan?

Fixed-rate loans come with an interest rate that doesn’t change throughout the repayment period. An interest rate is a percentage of the borrowed amount that the lender charges the borrower. Other fees may be included, but the interest rate makes up the most significant portion of loan fees.

Getting a fixed-rate loan is usually a preferred option for borrowers, because the payment remains the same throughout the life of the loan. This makes it easier to plan your budget, as you always know how much you’ll pay toward the loan each month.

Variable-rate loans, as the name suggests, carry an interest rate that changes based on the current financial markets. The market dictates how high the interest rate will be, and your payment will fluctuate as the market does.

What Types of Loans Come with Fixed Interest Rates?

There are several types of fixed-rate loans to choose from, including:


Mortgages are secured loans where a borrower’s real estate acts as collateral. When taking out a mortgage, you can choose between fixed and variable-rate options.

Since most mortgages have a 30-year term, it’s hard to predict how the market might behave during that time. Because of this, most borrowers choose a fixed-rate mortgage. 

With a fixed-rate mortgage, you’ll know how much you need to pay every month, and you won’t have to worry about sudden market changes.

Student Loans

Student loans are used to pay for higher education. Because the U.S. Department of Education wants more people to pursue higher education, they’ve made student loan interest rates among the lowest available.

Most student loans come with a fixed interest rate, so you’ll know how much you need to pay every month when the repayment starts.

Auto Loans

Auto loans are used for buying a new car, truck, motorcycle, or other motor vehicle. The purchased vehicle serves as collateral, and if you stop making payments the lender can seize the vehicle and sell it to cover the loss. Most auto loans come with fixed interest rates.

Personal Loans

Personal loans are a form of unsecured borrowing, where the borrower takes out a certain amount of money, and then pays the loan back with interest over a set period of time. Most personal loans come with fixed rates, which makes it easier to plan out your budget.

Are Fixed-Rate Loans Better than Variable-Rate Loans?

There’s no simple answer to this question—it depends on several factors.

When interest rates rise, getting a fixed-rate loan may be a good idea. In contrast, if the rates are at a historic high, and a fall is expected, getting a variable-rate loan can be a better choice. However, predicting how interest rates will change over time is difficult, and even experts can get it wrong.

Fixed-rate loans can save you from an unexpected increase in monthly payments. However, fixed-rate loans often start with a higher interest rate than variable-rate loans. The difference may only be one or two percent, but it still makes variable-rate loans more appealing. Lenders set higher interest rates to protect themselves from market fluctuation.

Also, fixed-rate loans might be less desirable for short-term borrowing. Interest rates shouldn’t change much during a short period, so getting a variable-rate loan that starts with a lower interest rate may be a better idea.

If you have a fixed-rate loan and rates fall, you can try to refinance your loan into a less expensive one. Keep in mind that additional charges may apply for paying back your previous loan early, depending on the type of loan and the lender.

The Bottom Line

Fixed-rate loans are recommended depending on your situation—a fixed monthly payment makes it easier to budget and plan.

CreditNinja offers personal loans with fixed rates. If you’re looking for a reliable way to improve your current financial situation, we can help. Apply today and see if you’re eligible for a personal installment loan from CreditNinja!

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