A fixed rate is designed to stay the same for a stated period. A variable rate can change under the rules in the loan agreement. Neither label tells you the whole cost of a loan.
Read the change rules
For a variable-rate offer, ask what index and margin set the rate, how often it can change, and whether there are caps on each change and over the life of the loan. Find out when a low introductory rate ends and how the payment could change afterward. A fixed rate may still have a payment that changes for other reasons, such as taxes and insurance in a mortgage escrow account.
Compare a difficult scenario
Do not compare only the first payment. Ask the lender to show what you might pay if the rate rises under the contract’s terms. Consider how long you expect to keep the loan and whether your budget could handle a higher payment. Compare APR, fees, term length, and total cost as well as the stated rate.
For mortgages, the Loan Estimate shows whether the interest rate and payment may change. Ask questions until you can explain the possible changes in plain words before signing.
Further reading: CFPB Loan Estimate explainer and CFPB loan comparison guide.
This is general educational information for U.S. readers. Product terms and state rules vary. Check current documents and ask a qualified professional when you need personal advice.