Understanding Interest Rates, Fees and Interest Capitalization - Interest Rates Tab
The interest rate on a loan can be fixed – a rate that stays the same over the life of the loan – or variable – a rate that fluctuates over the life of the loan.
Fixed Interest Rates
The interest rate charged on a fixed rate loan will remain the same for that loan's entire term, no matter what market interest rates do. Attributes of fixed rate loans include:
- Payments will be the same every month allowing for a very accurate way to manage your budget.
- If interest rates go up, your fixed rate will remain the same, providing protection in a higher interest rate environment.
Federal Direct Loans have a fixed interest rate for the life of the loan.
Variable Interest Rates
The interest rate charged on the outstanding balance of a variable rate loan will change periodically. Variable interest rates can change annually, quarterly or even monthly. Attributes of variable rate loans include:
- Payments may not be the same every month, making it difficult to manage your budget.
- Your interest rate may be lower or higher depending on market conditions.
Private loans typically have a variable rate, though this is not always the case.
Lenders often charge fees when you borrow money.