Variable-rate loan

Variable-rate loan

Loan made at an interest rate that fluctuates depending on a base interest rate, such as the prime rate or LIBOR.

Variable-Rate Loan

A loan with an interest rate that changes periodically. Generally speaking, a variable rate loan is linked to some major benchmark rate; for example, the interest rate may be stated as "LIBOR + 1%." The loan may or may not have a cap on how much the interest rate can rise or fall, or on how often the interest rate may change. Very often, the initial interest rate for a variable-rate loan is lower than that for a fixed-rate loan. This allows more people to qualify for a loan; however, this kind of loan can be risky because the interest rate (and therefore the monthly payment) can rise unexpectedly. See also: Adjustable-rate mortgage.
References in periodicals archive ?
A fixed-rate loan would permit an upfront payout of over $97,000, whereas a variable-rate loan would provide $971 in monthly cash flow.
The Japanese bank will offer a 14-year variable-rate loan of around USD50m, or JPY4.
TO) subsidiary is planning to provide a 14 year variable-rate loan amounting to around USD50m to a local private-sector company undertaking the project.
99 per cent interest on her variable-rate loan, explained: "They enabled us to sell our house, which provided us with a deposit for buying our second home.
According to loan documents and the lawsuit, Myra Plant obtained a variable-rate loan of $950,000 at 8 percent interest on Feb.
If you think that's likely to happen then you may be better off choosing a variable-rate loan.
A IT depends whether you have a fixed-rate or variable-rate loan.
So, if rates go up by a higher amount than the cap allows, the variable-rate loan will cover part, but not all the increased cost of interest rates paid on deposits.
Chateau, 1990, "Valuation of Capped Variable-Rate Loan Commitments", Journal of Banking and Finance, 14:717-728
In fact, despite the current period of low interest rates, a variable-rate loan actually would have saved students money over a fixed-rate loan in 13 of the last 18 years, according to the Congressional Research Service.
In contrast, with a variable-rate loan, changes in interest rates alter the size of payments on existing loans and affect the borrower's discretionary income or cash flow, which may influence other types of spending.
A separate problem related to how the insurance commitment would apply initially to a variable-rate loan but continue to apply if the borrower converted from a variable-rate financing to a fixed rate.

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