Man on laptop in cafe.

Variable Vs. Fixed Rates: Your Quick Guide

Hanna Kielar4-minute read
UPDATED: July 26, 2023


When you're trying to get a loan, you'll likely have to choose between a variable rate and a fixed rate. You'll need to know the differences between these loans to make a decision that works for you, whether you're getting a student loan, refinancing your home or comparing credit cards.

This guide will help you understand variable versus fixed rates, which might help you get a good interest rate.

What Is A Variable-Rate Loan?

If you get a loan with a variable interest rate, the interest rate may fluctuate during the term of the loan. That means your monthly payment is also likely to change.

A variable rate's fluctuations are the results of changes in the market, and are often tied to an index, such as the prime rate. The variable rate can also fluctuate using a credit-based margin the lender determines, which is often tied to a borrower's credit score.

If market conditions drive interest rates low, borrowers might be able to switch their variable-rate loan to one with a fixed rate. This may require additional fees, so it can help to examine the terms lenders offer to ensure that you'll save money in the long run.

Personal Loans Any Time, Any Place.

See your prequalified offers in seconds.

Variable Rate Pros And Cons

These are pros and cons related to variable-rate loans.



Loan payments may fall when interest rates go down

If interest rates rise, the borrower's monthly payments will also increase

Variable interest rates may be lower than fixed rates

Variable rates can make it hard to plan future budgets

Borrowers may get better offers, such as lower interest rates, during an introductory period

If interest rates rise quickly, borrowers may find variable-rate loans more expensive than fixed-rate loans

A borrower may be able to switch to a fixed rate

Borrowers may need to pay fees to convert to a fixed rate

What Is A Fixed Interest Rate Loan?

Unlike a variable-rate loan, the interest rate for fixed-rate loans remains the same through the life of the loan. Lenders may offer a variety of interest rates based on the borrower's credit score or that of their co-signer.

Lenders can also charge a market rate that's tied to the loan length. Typically, fixed-rate loans are more expensive than variable-rate loans. But timing may make a critical difference in the fixed-loan rate. If a borrower takes out a fixed-interest loan when rates are low, they might pay less in interest if changes in market conditions result in higher rates for future borrowers.

Early repayment may result in additional fees, so it's often wise to carefully read the terms of the loan.

Fixed Rate Pros And Cons

Here are a few pros and cons associated with fixed-rate loans.



A borrower's payments will always be the same regardless of market conditions, allowing predictability for budgeting

Borrowers won't benefit from falling interest rates

Fixed-rate loans are insulated from rate increases

Fixed-rate loans may include penalties for changing terms or exiting the loan earlier

Fixed-rate loans have a wide range of lengths

Fixed-rate loans often have a higher total cost

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

It's difficult to say which type of interest rate is better. It often depends on a number of factors, including the loan terms and the type of loan. Let's explore a few important points you’ll want to consider before deciding.

  • Lender fees: Borrowers who need a personal loan may have to pay origination fees, while homeowners may have to pay origination, application and underwriting fees on a mortgage. Since these fees also affect the total amount you’ll pay to get a loan, it’s important to consider them. If the fixed-rate loan has lower fees than the comparable variable-rate loan, then the fixed rate may be the better option.
  • Term length: Longer repayment terms may result in a borrower paying more interest. With shorter term lengths, you may have higher monthly payments but you will pay less in interest. An option that offers a shorter term length may be right for you if you can afford the higher payment in the short term.
  • Expected income: How much you're expected to earn plays a role in deciding which interest rate is better in the long term.

Why Loan Types Matter

Student loans and mortgage loans are two situations where one type of interest rate might have an edge under certain conditions.


Choosing an adjustable-rate mortgage (ARM) with a lower initial rate might work for homeowners planning to sell their home or refinance after a few years. However, if you're planning to stay in the same home for a long time, the interest rate on an ARM might climb higher than a fixed-rate mortgage.

Student Loans

Students with low credit scores or who are just getting their credit history started might find that fixed interest rates are their better option. The federal government determines interest rates on its loans, which means the rates aren't adjusted based on the borrower's financial situation. This is why many students finance much of their education using federal student loans.

Borrowers with good credit, though, can secure private student loans with variable interest rates. This can help them get a lower interest rate or allow them to refinance.

FAQs: Fixed Rate Vs. Variable Rate Loans

Here are a few questions people often ask about fixed interest rates versus variable interest rates.

Why would someone choose a variable rate?

It's possible for borrowers who choose variable rates to pay less if interest rates go down. They may also want to take advantage of lower introductory interest rates.

Is it better to go with fixed rate or variable rate?

It depends on the type of loan and the current market conditions. There is no one-size-fits all answer for every loan type. The answer can vary depending on whether you're choosing a credit card, getting a mortgage or refinancing a loan.

Can I switch from a variable rate to a fixed rate?

It's often possible to switch from a variable interest rate to a fixed rate. Your lender may require additional fees, though.

Final Thoughts: Choosing Fixed Vs. Variable Interest Rates Depends On Your Situation

Carefully consider the market conditions and your financial situation when choosing between a variable or a fixed interest rate. It can also help to review the fees associated with your options – this will help you determine which interest rate is cheaper in the long run.

Ready to apply for a personal loan? Get started with Rocket LoansSM today.

Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.