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Although taking out a personal loan is easy enough, there are several important decisions you'll need to make. For example, you'll need to decide whether you want an unsecured loan or a secured loan, and you'll be expected to know whether you want a fixed interest rate or variable interest rate loan. Here, we'll break down the differences between fixed-rate and variable-rate loans so you'll be ready when the time comes.
A fixed interest rate is a rate that stays the same over the life of the loan. No matter what's going on with the economy, your interest rate never changes, so your loan payments stay the same each month. Most of the best personal loan lenders offer fixed-rate loans. If you're someone who appreciates stability and likes knowing what you can expect from month to month, a fixed interest rate may be the best option for you.
Let's say you've decided to make renovations to your home and need a personal loan to make it happen.. You're told that you have access to an adjustable-rate personal loan. You learn that the initial interest rate will be set in stone for a specific period of time, and that sounds good to you. However, once that period of time is up, the interest rate on the loan will periodically be adjusted. Depending on what's going on with the market, the interest rate can either be adjusted up or down. And that makes you nervous. You want to know for sure how much your loan rate and the monthly payment will be throughout the life of the loan. While an adjustable-rate loan might be perfect for a borrower who only plans to keep the loan for a short time, you're not confident that you'll be able to retire the loan before the final payment is due.
Note: Even if a borrower plans to come out on top by keeping an adjustable-rate loan for a short time, it only works if their lender does not charge an early payoff fee.
Instead, you opt for a fixed-rate loan. Your credit score is high, so you lock in a decent interest rate and feel good about the decision. You know exactly how much the annual percentage rate (APR) on the loan is going to be, are crystal clear as to how much your monthly loan payment will be, and have already come up with a repayment plan that will allow you to pay the loan balance off early.
While a fixed-rate loan is perfect for you, another borrower may feel better served by an adjustable-rate loan. Maybe they don't believe they'll carry the loan long enough to worry about paying a higher interest rate when the introductory rate expires. Perhaps they can easily afford the payment, even when rising interest rates lead to a higher monthly payment. To learn more about adjustable-rate loans -- and find out if they're right for you -- check out our guide to adjustable-rate personal loans.
Here, we take a look at what's great (and not so great) about fixed-rate loans.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
A fixed-rate personal loan is your best bet if you don't like financial surprises and want a loan payment (and interest rate) that never goes up. Whether or not you should opt for a fixed-rate loan or variable-rate loan depends on how you feel about risk and whether you can afford a higher monthly payment if the interest rate rises.
Deciding if you want a fixed-rate or adjustable-rate loan is made a little trickier today by higher average interest rates for personal loans than we've seen in a while. When market interest rates are high, borrowers sometimes opt for an adjustable-rate loan because those loans start with lower interest rates. However, those borrowers have zero control over which direction their monthly payments move.
And while we're on the topic of today's interest rates, take time to consider how a fixed-rate vs. variable-rate loan applies to other loan types. For example, when you purchase a home, a lender will want to know whether you want a fixed mortgage or a loan with a variable interest rate. The same rules apply:
Take your time to consider if a fixed-rate loan and its predictable payments are the right fit for you. If the answer is yes, you know precisely which loan type to request, even before filling out a loan application. And it pays to be ready. You never know when you'll need an emergency loan to cover a flooded basement or unexpected medical expenses.
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You always know what your rate and payment are going to be throughout the life of the loan. There's no hoping it decreases or worrying that it will increase.
If rates fall while you're repaying the loan, you're stuck with the rate you signed up for.
Like most loans, you can refinance a personal loan. There will be fees involved in refinancing. However, it pays to put pencil to paper to figure out if the amount you'll save on payments each month will be enough to make up for the fees.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $10,000 loan at 8.49% APR with a term of 5 years would result in 60 monthly payments of $205.12. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2024 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.