Variable-rate financing

Description

Variable-rate financing

Variable-rate financing is where the interest rate on your loan can change, based on the prime rate or another rate called an “index.” With a variable-rate loan, the interest rate on the loan changes as the index rate changes, meaning that it could go up or down. Because your interest rate can go up, your monthly payment can also go up. The longer the term of the loan, the more risky a variable rate loan can be for a borrower, because there is more time for rates to increase.  Variable-rate financing is one type of financing. Another type is fixed-rate financing.