Fixed Rates vs. Variable Rates
When you apply for credit, knowing the difference between fixed rates and variable rates is key.
Learn more about the differences between fixed rates and variable rates on various credit products.
Video Transcript
When you apply for a personal loan or credit card, knowing the difference between variable and fixed rates is key. It can impact how much you pay each month and the interest you'll pay over the life of your loan. With fixed rates, your interest rate never changes. You lock in an interest rate when you're approved, and your monthly payments stay the same over a fixed repayment period.
That means you can add the date on your calendar when you'll be debt free, and with consistent monthly payments, it's easier to plan your budget and avoid missing other payments. Now with variable rate products, the interest rate can move up or down based on changes in the underlying index, such as prime rate.
That means if the index rate goes up, your credit card or loan interest rate will also go up, which can increase your monthly payments and the total cost of your loan. With unpredictable monthly payments that can change any time, it can be challenging to manage a monthly budget. Now, how do you decide if fixed rate or variable rate is right for you?
It depends on your personal financial situation and flexibility. For many of us, going with fixed rate installments is great because it gives us more structure. If you want the consistency of knowing exactly what your monthly payments will be over time, then fixed rate might be best for you. On the flip side, variable rate products often have lower initial interest rates than fixed rate options.
Whichever option you pick, it's crucial you choose what you can afford, because paying your bills on time, every time, is one of the best things you can do for your credit score and overall credit health.
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