Auto financing might be more accessible if it had simpler language. Customers of our Garcia Honda Albuquerque have actually said this to us in the past, and we can't agree more. That's why we decided to briefly examine and explain common but confusing auto finance terms.

Fixed-Rate and Variable-Rate

Fixed-rate is a financing term referring to a loan with a fixed interest rate. Over the life of the loan, the interest stays the same as does your monthly payment, and you can see whatever final total your loan may cost over its life. Variable-rate is simply the opposite. It's a loan rate that may fluctuate, going up or down according to index rate changes.

Fixed vs. Variable

Although there are exceptions, fixed-rate loans tend to have slightly higher interest rates than variable-rate loans. However, while variable-rate loans start out with interest rates lower than those tied to fixed-rate loans, the variable-rate interest almost invariably goes up as the loan's lifespan gets longer. As a result, variable-rate financing is a good option for short-term financing, whereas fixed-rate financing may be preferable overall.

 

Categories: Finance