A fixed-rate loan for a motor vehicle purchase offers borrowers greater predictability and stability to manage their financial commitments.

When borrowing money for a motor vehicle purchase, borrowers have the option of choosing a fixed-rate loan which offers a constant interest rate throughout the term of the loan. With a fixed-rate loan, the interest rate is ‘locked in’ at the time that the loan is taken out, which translates to the same repayment amount each month.

This type of loan is ideal for individuals who want their repayments to stay predictable so that they can accurately budget for the vehicle purchase and manage their financial commitments through the loan term.

One of the biggest benefits of choosing a fixed-rate loan is the consistency of monthly repayment amounts, which makes it easier for borrowers to plan and manage their finances ahead of time. Having a fixed interest rate also means that borrowers will be protected from future hikes in the market rate, enjoying potential cost savings.

However, the option to have a fixed interest rate on the loan is usually offered at a slightly higher rate (as compared to variable-rate loans). This also means that if the market rate drops during the loan term, borrowers can miss out on potential cost savings.

Can I switch to a variable rate during the fixed rate period?

Yes — but this will depend on the lender’s willingness to offer the switch. Some lenders allow borrowers to switch from a fixed rate to a variable rate, but this may involve additional fees or penalties. In any case, it’s always a good idea to review the loan agreement and discuss options with the lender in order to understand the implications of making a change to a variable-rate loan.

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