A fixed-rate loan locks in the same interest rate for the entire term, so your payment never changes. A variable-rate loan's interest rate moves with a benchmark rate (like the prime rate), meaning your payment can rise or fall over the life of the loan.
Fixed Rate
- Interest rate never changes for the full term
- Monthly payment is completely predictable
- Protects you if market rates rise
- Most personal installment loans use a fixed rate
Variable Rate
- Rate moves with a benchmark like the prime rate
- Payment can increase or decrease over time
- Can start lower than a comparable fixed rate
- More common with lines of credit than installment loans
At a Glance
| Aspect | Fixed Rate | Variable Rate |
|---|---|---|
| Payment predictability | High — same every month | Low — can change |
| Rate movement risk | None — locked in | Yes — tied to market rates |
| Common on | Personal installment loans | Lines of credit, some mortgages |
The Verdict
For a personal loan, a fixed rate is almost always the better choice, since it gives you a predictable payment for budgeting and protects you from rate increases during the loan's term. Variable rates are more relevant if you're comparing a line of credit rather than a fixed-term installment loan.