Overview
When taking out a loan, one of the most important factors to consider is the interest rate type. The interest rate type for a loan generally falls into one of two categories: fixed-rate or variable-rate. Understanding the differences between these two can help you make an informed borrowing decision.
Most loans offered through Upstart’s lending platform are fixed-rate loans.
What Is a Fixed-Rate Loan?
A fixed-rate loan has an interest rate that remains the same for the entire loan term. This means:
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Your monthly payment amount stays consistent over time.
Note: Your final payment may be different since it’s the final installment at the end of your repayment period.
You won’t be affected by market fluctuations in interest rates.
Planning and budgeting are easier since your payment doesn’t change.
Common Uses for Fixed-Rate Loans:
Personal loans
Auto loans
Mortgages (many home loans offer fixed rates)
Advantages of Fixed-Rate Loans
✔ Predictable payments make budgeting easier.
✔ Protection from rising interest rates.
✔ Best for borrowers who prefer stability.
Disadvantages of Fixed-Rate Loans
✘ Initial interest rates may be higher than variable rates.
✘ You won’t benefit if interest rates decrease in the future.
What Is a Variable-Rate Loan?
A variable-rate loan (also known as an adjustable-rate loan) has an interest rate that can fluctuate over time. This means:
Your monthly payment may increase or decrease based on changes in the market.
Some variable-rate loans start with a low introductory rate, which later adjusts periodically.
Common Uses for Variable-Rates:
Credit cards
Adjustable-rate mortgages (ARMs)
Home equity lines of credit (HELOCs)
Advantages of Variable-Rate Loans
✔ Lower initial interest rates compared to fixed-rate loans.
✔ Potential to save money if interest rates decline.
✔ Suitable for short-term borrowing or when rates are expected to stay low.
Disadvantages of Variable-Rate Loans
✘ Monthly payments can increase over time, making budgeting unpredictable.
✘ Interest rate hikes can result in higher total loan costs.
✘ Not ideal for borrowers who prefer financial stability.
Next Steps
Before choosing a loan, review the terms carefully to understand whether it has a fixed or variable rate and how changes in interest rates could affect your payments.
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