A fixed rate is where the interest rate is locked in at a specific rate for the term of the loan. So, as long as you follow your loan repayment plan, you will know exactly how much money will go towards paying off your loan.

The only downside to a fixed rate loan is that some lenders will charge a fee when the total loan amount is repaid early, and some have limits on how much extra you can repay. You also may not get the benefit if rates drop during your loan term.

Unlike the stability that comes with a fixed rate, the interest rate on a variable rate loan can change over the course of your loan term in or against your favour. But, don’t let this put you off!

If you are in a position where your finances can handle a slight rate change, and you want the opportunity to clear your debt whenever it suits, a variable rate car loan could be more suitable for you.