Variable Rate Loans for Cars Explained

Many consumer experts say that variable rate loans are generally something to stay away from for vehicle loans and other similar borrowing needs.

The issue with variable rate loans is that the loan includes a clause allowing the interest rate to be raised according to market changes. This means that when interest rates rise, so will the rates on the auto loan.

What this means for the buyer is that a dealer or other lender can calculate the payments, say, for a one year term. But, if interest rates rise, the loan will need to be raised or extended. What some lenders can do is hide the difference in a longer term. The problem with a longer term for an auto loan is that as it gets paid off over a longer time period, more interest will keep accruing, and a buyer may have a hard time following any changes.

This is why variable rate loans are generally not recommended for anyone without a specific reason for going this route.