Are Personal Loans Fixed or Variable?

Taking out a personal loan is like choosing between a road trip with a set itinerary (fixed-rate) or an unpredictable adventure where the route changes (variable-rate). Both can get you where you need to go — but the ride looks a little different.

So, are personal loans fixed or variable? The short answer: both exist, but fixed-rate personal loans are more common.

If you’re looking for stability, a fixed personal loan locks in your interest rate so your payments never change. But if you’re open to risk and potential rewards, a variable rate personal loan starts with a lower interest rate but can fluctuate over time.

Let’s break it all down so you can borrow smarter, not harder.

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Table of contents

• Understanding personal loan interest rates

• What are fixed-rate personal loans?

• What are variable-rate personal loans?

• How to choose between fixed and variable rate personal loans

Understanding personal loan interest rates

Unlike mortgages, small business loans, or HELOCs, which often have restrictions on how you use them, personal loans are flexible. You can use them for home improvements, emergency expenses, debt consolidation, or even a dream vacation.

But here’s the potential catch — interest rates.

Your loan’s interest rate depends on factors like:

• The Federal Reserve (Fed) rate (which affects all lending rates)

• Your credit score and history

• The loan term and amount

Whether you choose a fixed or variable personal loan, interest rates can impact your budget big time. Let’s dig into the differences.

What are fixed-rate personal loans?

A fixed personal loan means your interest rate never changes. No matter what happens to market rates, your monthly payments stay the same for the entire loan term.

How it works

Say you need $20,000 for unexpected medical expenses and credit card debt. You take out a fixed-rate personal loan with a 12.10% interest rate for five years.

• Your monthly payment: $445.90

• Your total interest paid: $6,754.02

Even if the Fed hikes rates, your loan payments won’t budge. But if rates drop, you’re locked in at 12.10% — which could be a downside.

When to get a fixed-rate personal loan

A fixed-rate personal loan might be the right move if:

• You want predictable monthly payments

• You prefer stability over risk

• You’re consolidating high-interest debt

• You don’t want to stress about rising rates

Pros

• Set monthly payments make budgeting easier 

• No surprises — your interest rate stays locked in

• You can avoid market rate increases 

Cons

• If interest rates drop, you’re stuck with a higher rate 

• Fixed-rate personal loans often start higher than variable rates 

What are variable-rate personal loans?

A variable rate personal loan has an interest rate that changes over time. The rate usually stays fixed for a set period (often one to five years) and then adjusts periodically based on an index like the Fed rate.

How it works

Let’s say you take out a $20,000 variable rate personal loan with an initial rate of 11.33%. The rate is based on the Fed rate + 6%, so it adjusts every six months.

• Year 1: 11.33%

• After adjustments? Who knows! If the Fed raises rates, your loan interest could spike — increasing your payments. But if rates drop, you could pay less over time.

When to get a variable rate personal loan

A variable rate personal loan could make sense if:

• You want lower initial interest rates

• You expect interest rates to drop

• You’re okay with some financial risk

• You have flexibility in your budget

Pros

• Potential for lower interest rates over time 

• Often starts with a lower rate than fixed loans 

• May save you money if rates decrease 

Cons

There are a few disadvantages of variable-rate loans you should be aware of. These include:

• Rates can increase, making your payments unpredictable 

• Harder to budget for the long term 

• Not ideal if you need stable payments 

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How to choose between fixed and variable rate personal loans

Not sure which one is right for you? Consider these factors:

• Loan duration: Fixed loans are better for long-term stability, while variable loans might be ideal for shorter-term borrowing.

• Payment flexibility: If you need consistent payments, go fixed. If you have room in your budget for fluctuations, variable might work.

• Risk tolerance: Hate surprises? Stick with fixed. Open to some interest rate changes? Consider variable.

• Initial rate gap: If the variable loan rate starts significantly lower, it might be worth the risk.

• Income stability: If your income is steady, a fixed loan is safer. If you expect higher earnings soon, a variable loan might pay off.

• Economic climate: If rates are high now but expected to drop, a variable loan could be strategic.

• Total borrowing costs: Run the numbers — sometimes the difference in interest paid is small, making stability more valuable than potential savings.

The Smartest Way to Borrow? It Depends on YOU

There’s no one-size-fits-all answer when it comes to choosing between a fixed or variable personal loan. It depends on your financial situation, goals, and risk tolerance.

Need predictability and stability? A fixed personal loan is likely the way to go. Comfortable with some risk for potential savings? A variable rate personal loan could work best for you.

No matter what, make sure you’re choosing a loan that fits your budget and financial future.

Looking for the best personal loan for your needs? Compare top offers with MoneyLion today.

FAQs

Are personal loans variable or fixed rate?

Most personal loans are fixed-rate, but some banks and online lenders offer variable rate personal loans as well.

Can personal loan interest rates change over time?

Fixed-rate personal loans stay the same throughout the term, while variable rate personal loans adjust periodically based on market interest rates.

Are fixed-rate personal loans more predictable regarding monthly payments?

Yes. Fixed-rate loans offer consistent monthly payments, making them easier to budget for.

Do variable-rate personal loans have the potential for lower interest rates?

Yes, but it depends on market trends. If rates go down, you could save money — but if they rise, your payments increase.