Truck Loans: Comparing the Merits of Fixed Versus Variable Rates

Truck Loans  

Vehicle loans are the one of the most common forms of financing. Terms may be as short as a couple of years or last for as long as six years. One of the decisions the buyer must make has to do with the type of interest rate. While a fixed rate installment loan is more well-known, it’s possible to secure a truck loan with a variable interest rate.


This article will explore the following:

  1. What is a Fixed Rate Loan?
  2. What is a Variable Rate Loan?
  3. Pros of Fixed Rates
  4. Pros of Variable Rates


What is a Fixed Rate Loan?


A fixed rate loan comes with a interest rate that will not change for the duration of the loan term. That rate is identified in the loan provisions and remains in effect until the debtor settles the obligation or chooses to roll the existing loan into a new one. Many lenders calculate the monthly installment payments so that more of the interest rate is paid during the first year or two of the truck loan. After that, more of each monthly installment payments goes to settle the principal.


What is a Variable Rate Loan?


Variable rate loans are structured much like their fixed rate counterparts. The difference is how the rate of interest is calculated and adjusted during the life of the loan. With a variable rate arrangement, the first year or two will carry a fixed rate. After that, the interest rate will fluctuate based on the current national average.


Pros of Fixed Rates


Fixed rate truck loans provide benefits that many consumers find attractive:

  • The rate is locked – no matter what happens with the national average, the loan rate remains the same.
  • The debtor knows up front how much interest will be paid over the life of the loan.
  • The payment amount and the term is constant, making it easier for the debtor to plan a budget.
  • Many fixed rate loans come with an option to switch to a variable rate if the debtor desires.


Pros of Variable Rates


Variable interest rate loans also offer advantages that attract those seeking to finance truck purchases:

  • The debtor can specify the amortization term, usually up to seven years.
  • If the national average decreases, the interest rate adjusts to a lower figure until the lender reviews the rates again.
  • If the national average increases, the debtor may see little to no change in the monthly payment; instead, the amortization period can be adjusted.
  • In the event of a national average decrease, the debtor would continue to pay the same monthly amount and shorten the amortization period.
  • Many variable rate loans come with the option to switch to a fixed rate if the debtor desires.

The options for auto and truck loan financing are more versatile than many consumers realize. Choosing to work with a provider who offers access to multiple lenders through a directory increases the odds of finding the right lending arrangement. Instead of assuming that dealer financing is always the best choice, compare the terms with those offered by other lenders. Doing so could save a great deal of money over the life of the loan.




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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.