Should I Get A Fixed Or Variable Rate Truck Loan?

Should I Get A Fixed Or Variable Rate Truck Loan?

Written by Bryan Daly
Fact-checked by Caitlin Wood
Last Updated November 19, 2021

Are you interested in purchasing a truck to expand your business, haul cargo, or for personal use? If so, a truck loan may be exactly what you need. After all, the average truck can cost a pretty penny, even if it’s second-hand or an older model, and financing it gradually might be the most affordable solution for you. 

However, before you apply, it’s essential to think about the costs you may encounter throughout your repayment plan, particularly your interest rate, which can certainly add up over time. It’s also important to consider whether you want a fixed or variable interest rate truck loan. Stick with Loans Canada to find out which rate will work better for you. 

What’s The Difference Between A Fixed And Variable Rate Truck Loan?

In Canada, there are plenty of lenders, dealerships, and manufacturers that can offer you a truck loan. Although some of them only have one kind of interest rate, others may give you the option of paying a fixed or variable rate, both of which have different characteristics that can be good or bad for your finances:

  • Fixed Rate – As its name suggests, a fixed interest rate will not change over the course of your repayment plan. When you apply for a truck or auto loan, your rate is set according to how strong you are as a candidate. The more qualified you are, the lower and more affordable your fixed rate will be overall. 
  • Variable Rate – On the other hand, a variable interest rate can fluctuate based on a number of factors (which we’ll discuss below). Depending on where you apply and what your loan conditions are like, some lenders will charge you a fixed rate for the first one or two years of your plan, then switch you over to a variable rate.

What Are The Benefits Of A Fixed Rate Truck Loan?

You may prefer a fixed interest rate for your truck loan because:

  • Your payments will be easier to calculate and more predictable over time 
  • After it’s been locked in, your rate should not change for any reason
  • Typically, your loan term will also be fixed and easier to budget for
  • You may be able to switch to a variable rate after one or two years
  • The better your finances and credit are, the lower your rate will be

What Are The Benefits Of A Variable Rate Truck Loan?

You may prefer a variable rate for your truck loan because:

  • If Canada’s prime rate drops, variable rates can be lower than fixed rates
  • If rates go up, a balloon payment may be required at the end of your term
  • If rates dip, your payments may not change, but your term gets shortened
  • You’re often able to choose the overall length of your repayment term
  • Your lender may allow you to switch back to a fixed rate if you wish

What Factors Affect The Cost Of A Variable Rate?

Prior to applying for a fixed or variable rate truck loan, it’s essential to consider all factors. For instance, there are a few things that can cause a variable interest rate to increase and decrease over the course of your loan term, including but not limited to:

  • Rate Cap – Before you apply, it’s important to ask your lender if they have a maximum limit to their variable rates, otherwise they could charge what they want and you could end up paying more for your loan than your truck is actually worth. 
  • Prime Rate – In Canada, there is a national average for interest rates lenders can charge, which goes up and down according to the current state of our economy. If the average climbs, so will your variable interest rate and vice versa.
  • Loan Term – If you have a variable rate, it may be better to choose a shorter repayment term, since a longer amortization period means there’s more time for Canada’s primate rate to go up and increase the size of your loan payments.

Should You Get A Fixed Or Variable Rate Truck Loan?

All in all, there are plenty of reasons to choose a fixed rate or variable rate for your truck loan and your final decision shouldn’t necessarily be an easy one. In fact, it’s always smart to research and compare a few lenders, dealerships, and manufacturers in your area to see which one can offer you the best financial conditions before you apply.

That said, there are a couple of basic principles that can at least give you an idea of which type of truck loan interest rate will work best for your finances: 

  • A fixed interest rate may be a safer choice if you have healthy finances, good credit, and security (collateral) to offer in exchange for more favourable conditions. Although your rate may be slightly higher than some variable rates, it will also be easier to budget for and can help you predict the final cost of your loan. 
  • A variable interest rate might be a better option if Canada’s prime rate is expected to decrease during your repayment plan and if you would prefer to choose the overall length of your loan term. With a lower initial rate and a shorter repayment term, you may be able to save more money than with a fixed rate. 

Looking For The RightTruck Loan?

Whether you would prefer a fixed or variable interest rate for your truck loan, there are sure to be several sources of financing in your area and Loans Canada can help you find them. We’re here to connect you with the best loan information, rates, and lenders. All you have to do is call our customer service or check out our website today!   

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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