How can a loan have a fixed apr but variable interest rate

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By CreditNinja
Modified on January 19, 2024

If a loan has a fixed APR, it means that the interest rate will be the same throughout the repayment period. This means that a loan can’t have a fixed APR and also a variable interest rate. It would have to be one or the other. 

So what is a fixed interest rate? It’s an interest rate for a loan, credit card, or other financial product that will not change throughout the life of the loan. That means every payment you make should be the same. Unless you encounter any late fees, that is. Fixed-rate loans come in many different shapes and sizes, and there are pros and cons to choosing this type of loan. 

A variable-rate loan means that the interest rate may go up or down depending on certain factors. With a variable-rate loan, the interest rate changes based on something called the “prime rate.” This is an overall interest rate that large banks use when lending money to one another and to customers. If the prime rate goes up, it’s likely that your interest rate will as well. And the same goes for a drop in the prime rate. 

So what’s the difference between APR and interest rate? The interest rate is simply the percentage of interest you’ll be charged. But the APR is the total cost of the loan including interest and all additional fees. It stands for annual percentage rate, and it’s basically how much you’ll pay if you had the loan for an entire year. 

When applying for any loan or financial product it’s important to know the APR. This is a much more accurate way to determine how much you’ll pay in the long run. But should you choose a fixed-rate or variable-rate loan? Well, this will depend on your specific financial situation. 

Fixed-rate is good if you need stability and consistency. If you know your budget and you can’t deviate from it, then fixed-rate is probably the best way to go. But with variable-rate, you may save money if the rate drops. That being said, you may have to pay a bit more if it goes up.

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