The factors that will determine your fixed loan rate are your credit score and borrowing history, the specific type of loan and lender you choose, and the lending laws in the state where you live.
The first thing to become familiar with is what a “fixed-rate” loan is. Basically, there are two types of interest rates when taking out a loan or financial product. One is fixed-rate and the other is variable-rate. A fixed-rate loan is one where the interest rate won’t change at all throughout the life of the loan. That means whatever interest rate you get when you’re approved, is the rate you pay throughout the entire repayment period.
Variable-rate loans work a bit differently. A variable interest rate is one that may fluctuate up or down throughout the repayment period. These changes occur when the prime rate changes. The prime rate is an overall interest rate that banks and large institutions use when they lend to one another and to customers with great credit scores.
There are pros and cons to each type of interest rate. It’s good to have a fixed-rate loan if you have a set budget and you don’t want the interest rate to go up during the loan. It can be good for budgeting to know exactly what your payments will be every month. The nice thing about a variable interest rate is that there may be times when the rate lowers and you save money. But at the same time, your rate can go up just as easily as it went down.
So what determines your fixed loan rate? The biggest thing that affects the interest rate you’re offered will be your credit score and your borrowing history. When you borrow money through loans or when you use credit cards, your payments and activity are tracked by something called your credit report. This is a large report of your credit and borrowing history. When you make payments on time and have good financial habits, you’ll most likely have a good credit report, which means a good credit score.