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:

• Your monthly payment amount stays consistent over time.
  • Note: Monthly payments are fixed throughout your loan term except for the final payment, which may vary slightly.
• 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.