Loan Blogger

A Guide to Understanding Interest Rates, Part Two

In part one you learned how to calculate interest.  In this part of the two part series you will learn about the different types of interest rates.

You may get several options when you get a loan in how you want to be charged interest.  You may be offered a fixed or variable rate.

A fixed interest rate is an interest rate that stays the same for the life of the loan.  You pay the same amount every month until the loan is paid off.  Many people choose this option because it is predictable.  They know every month what their loan payment will be.

A variable interest rate, on the other hand, is an interest rate that changes.  As interest rates go up and down so will your interest rate.  You may have a different amount due each month.  People often choose a variable interest rate because it can save them money.  As rates go down they get to pay less.