Variable interest rate

Definition

Variable interest rates are calculated based on a base rate (or bank rate) and the strength of your Credit Profile.

Unlike a Fixed Interest Rate, a variable interest rate may fluctuate over the length of your repayment period and can impact the overall cost of your loan.

How it works

Variable rates are based on an index, such as the bank rate.

This is the interest rate set by the Bank of England, and it often influences the interest rates charged by other banks and high-street lenders.

Most lenders will set their interest rates based on the bank rate and then apply their own credit-based margins.

If you have an excellent Credit Score your interest rate will be lower, whereas a poor credit score will often result in a higher rate.

But remember, your interest rate will fluctuate to reflect any changes to the bank rate.

So, if the bank rate increases by 0.5%, your interest rate will rise by 0.5% also.

Benefits of variable interest rates

• Variable interest rates can be lower than fixed interest rates
• If the bank rate falls, you will benefit from lower Monthly Payments

Disadvantages of variable interest rates

• The bank rate can rise unexpectedly, increasing the cost of your repayments
• A significant rise could impact your ability to maintain your loan

Which type of interest rate is right for me?

Deciding on the best type of interest rate for you is key to determining the cost of your interest and requires careful consideration.

Variable rates may often appear cheaper, but they can change at any time.

So, if you’re considering a variable interest rate, it’s important you build enough margin into your budget to accommodate for any changes.

At Creditplus we only offer car finance packages with a fixed interest rate.

This way, you can budget easier and enjoy peace of mind, knowing there are no surprise costs waiting around the corner.