What is a variable rate loan?
A variable rate loan is a type of loan that has a changing interest rate. Usually, the APR of the loan will track the base rate of interest, but obviously a few points above this. This means that should the interest rate fall, then the rate of the loan will likely fall. However, if the rates rise then so will the APR of your loan. Interest rate risk Of course, the problem with taking out a variable rate loan is that the interest rate can vary, which is a risk if the rates rise. If you are on a fixed income, then getting a variable rate loan could cause problems for you should your monthly payments increase due to an interest rates rise. Before getting a variable rate loan, be sure that you can keep up with repayments even if the rates rise. Rates cap Although variable rate loans carry some risk, there is usually a cap on the amount that the interest rate can change, but up and down. This means you will know the maximum or minimum you will pay should the rates change. Getting a variable
