Ad Disclosure

Approval is not guaranteed and conditions apply.

British Columbia Residents: iCash offers payday loans in British Columbia (license number: 67639)

Ontario Residents: Loan amounts and repayment terms are subject to qualification requirements. The maximum allowable cost of borrowing under the payday loan agreement is $14 for every $100 advanced. On a $500 loan of 14 days, the total cost of borrowing is $70, with a total payback amount of $570 and an APR of 365%. On a loan of 62 days, the APR is 82.42%.

Manitoba Residents: To learn more about your rights as a payday loan borrower, contact the Consumer Protection Office at 1-204-945-3800 or 1-800-782-0067 or at www.manitoba.ca/cca/cpo

Nova Scotia Residents: Payday loans are High Cost Loans. The maximum allowable cost of borrowing under the payday loan agreement is 14$ per every 100$ received, which means on a 100$ loan for 14 days, the total cost of borrowing is 14$, with total payback amount of 114$ and an APR of 365.00%.

PEI Residents: Loan amounts and repayment terms are subject to qualification requirements. The maximum allowable cost of borrowing under the payday loan agreement is $14 for every $100 advanced. On a $300 loan of 14 days, the total cost of borrowing is $42, with a total payback amount of $342 and an APR of 365.00%. On a loan of 62 days, the APR is 82.42%.

The Cashback Program and Refer a Friend Program are not available in Manitoba, British Columbia and New Brunswick.

Get a free, no obligation personal loan quote with rates as low as 9.99%
Free quote with no impact to your credit

Fixed-Rate vs. Variable-Rate Loans

Bryan
Author:
Bryan
Bryan Daly
Expert Contributor at Loans Canada
Caitlin
Reviewed By:
Caitlin
Caitlin Wood, BA
Editor-in-Chief at Loans Canada
Caitlin Wood has more than a decade of experience helping Canadian consumers learn how to take control of their finances. Expertise:
  • Personal finance
  • Consumer borrowing
  • Credit improvement
  • Debt management
📅
Updated On: February 16, 2023
iCash

Fixed-rate vs. variable-rate loans, what is the difference and which one should you choose?

When taking out a loan, particularly when it comes to mortgages, you will be tasked with choosing between a fixed rate and a variable rate. But, do you know the difference and how each rate type will affect your debt? Keep reading to learn about fixed and variable rates.

Fixed-Rate vs. Variable-Rate Loans

Fixed-rate and variable-rate loans can dramatically change the cost of your loan and repayment amount. Depending on your financial situation, one option will be better suited to you than the other. 

What Is A Fixed-Rate Loan? 

A fixed loan is a loan in which the interest rate will remain the exact same throughout the duration of your term, no matter how much the market fluctuates. This means, your monthly payments throughout your loan term will remain the same.

Fixed-Rate Loan Pros

  • Offers much more stability (monthly payments are always the same.)
  • If you have a good credit score, you might be able to secure a very low fixed rate.
  • Unlike the variable rate, your rate won’t be affected by changes in the market (prime rate)
  • Loans with fixed rates are easier to budget around as payments stay the same. If you’re on a tight budget, a fixed rate would offer the most security. 

Fixed-Rate Loan Cons

  • If interest rates go down, you will not benefit from them unless you are able to refinance.
  • The rate on fixed loans is often higher than on variable-rate loans.
  • If rates ever go down, you will miss out on some savings.

What Is A Variable-Rate Loan? 

A variable loan, on the other hand, is a loan in which the interest rate will fluctuate throughout the lifetime of your loan. Variable-rate loans are advertised as prime plus/minus the interest rate (ex: prime+1.5%). How much the rate changes throughout the loan will depend on the current conditions of the market.

Variable-Rate Loan Pros

  • Often less expensive over time and have lower rates than fixed.
  • They are more flexible and may contain extra features and benefits. For example, variable-rate mortgages tend to have less costly penalties for breaking a contract.

Variable-Rate Loans Cons

  • The interest you pay with each payment can vary from month to month depending on the prime rate. 
  • Can be more complicated to understand and requires some monitoring.

Types Of Variable Rate Loans

As a credit user in Canada, there are several variable rate loans you can find, such as: 

Mortgages 

Mortgages can have fixed or variable rates. In the case of a variable-rate mortgage, your interest rate will fluctuate according to Canada’s prime rate, which will change throughout your term based on market conditions. So, while you have regular payments to keep up with, your variable rate affects the amount of principal you pay every month.

When variable mortgage rates drop, a larger part of your regular payment will go toward paying your principal. When they climb, a larger portion will be applied to your interest. It’s also important to know that variable-rate mortgages tend to have more flexible terms than fixed-rate mortgages, but this depends on what type of loan and lender you get.           

Personal Lines Of Credit

Similar to a credit card, a personal line of credit allows you to borrow money from a predetermined limit. You can use the money for any expense and spend as much as you need, up to that limit. 

Generally, personal lines of credit feature variable interest rates. Additionally, you’re only required to pay interest on the amount you borrowed until you repay it completely. Payment for the principal amount is only required after the draw period is over, however, you’re free to pay back the amount you owe before that.

Types Of Fixed-Rate Loans

In Canada, you may come across many kinds of fixed-rate loans too, including:

Personal Loans

Personal loans can also feature fixed and variable interest rates. However, unlike a variable rate, a fixed rate doesn’t change during your entire payment term. Although fixed rates can sometimes become higher than variable rates, your payments will stay the same, no matter what the state of Canada’s economic market is at the time.   

Mortgages

Fixed-rate mortgage payments are more predictable than they are with variable rates, which makes them a popular choice in Canada. As long as your rate fits your monthly budget, all you have to do is set up an affordable payment plan. Depending on the lender you choose, you can get a fixed-rate closed mortgage, a fixed-rate open mortgage or a fixed-rate convertible mortgage. 

Keep in mind that fixed-rate mortgages are often linked closely to the bond market. That means fixed mortgage rates tend to rise when Canada’s bond rates go up.     

Car Loans

Fixed interest rates are also common with car loans. You can typically apply for a fixed rate through your bank, credit union, online lender or vehicle dealership, but no matter where you go, comparing multiple quotes before applying is definitely the best strategy.

Like with personal loans, fixed-rate car loans can end up being pricier than variable-rate loans, especially when there’s a drip in Canada’s economic market. While they can help make a new car more affordable, you may save less money with a fixed-rate auto loan.        

Can You Get A Variable Rate Car Loan?

Although fixed-rate car loans are more popular in Canada, lots of auto lenders now offer variable-rate payment plans for new and used vehicles too. Just remember that variable rates can increase with the market at any point. On top of that, some lenders don’t have a rate cap, which means there’s no limit on how high your variable interest rate can get.

Should You Use A Variable Rate Loan Or A Fixed Rate Loan?

Historically speaking, variable rates have led to less interest being paid amongst our residents. Then again, just because past rates have been low, doesn’t mean they’ll stay that way forever. Our country’s economy is always changing and the longer your loan term is, the more interest you’ll pay during. Plus, the market will have more time to shift.

Here are some key factors to consider when choosing between fixed-rate vs. variable-rate loans:

  • Interest Rate Trend – If Canada’s prime rate is forecasted to increase, applying for a fixed rate may be a safer choice, depending on how high it is. On the other hand, a short payment term with a low variable rate is far better when rates drop. 
  • Loan Term – Shorter terms often have higher rates but won’t cause you to pay as much interest as longer terms. Since longer terms can feature lower rates, they may be more affordable. It all depends on the economy and your financial health.
  • Personal Financial Situation – To understand if a fixed or variable rate matches your finances, make sure to review your income, bank account balance and existing debts. Applying with a cosigner or collateral may help you qualify for better rates.

Fixed-Rate vs. Variable-Rate FAQs

Are variable-rate loans cheaper?

As mentioned, this really depends on the condition of Canada’s economy when you apply for your loan. For instance, if the prime rate does down, variable rates could end up being lower than fixed rates. On the other hand, choosing a fixed rate could end up being more affordable if the prime rate goes up during your loan term.  

Can I switch from a variable rate mortgage to a fixed rate mortgage?

If you currently have a variable rate mortgage, you’re allowed to lock in a fixed rate, whenever you want, for the rest of your term. However, you can only do this once. For instance, some homebuyers will switch to a fixed-rate mortgage for financial reasons.  Luckily, if you’d like to convert your variable rate to a fixed one, you won’t have to pay any penalties, provided you do so through your current lender. In that case, you must take the fixed rate they give you, even if it becomes higher than future variable rates.  

Is a variable rate or fixed rate better? 

In general, fixed loans are better for those who prefer the predictability of consistent monthly payments, can qualify for low-interest rates and believe that interest rates will rise in the next few years. Variable loans are good for individuals who are more comfortable taking risks and feel that interest rates will drop from what they are currently.

Bottom Line

Whichever you decide to go with, you should ensure you put a lot of thought into it.  Just remember, a loan is a helpful tool, but it can also lead to unmanageable debt if not used responsibly. Ensure your loan payments are well within your means. Before you apply for any loan, it is a good idea to do some research and take a step back to ensure you are making a good choice based on your current financial situation and needs.

Bryan Daly avatar on Loans Canada
Bryan Daly

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.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2025/07/Do-payday-loan-affect-credit.png
Do Payday Loans Affect Your Credit In Canada?

By Caitlin Wood, BA
Updated on July 3, 2025

Whether or not you plan on getting a payday loan, it's important to understand how it can impact not just your finances but your credit.

https://loanscanada.ca/wp-content/uploads/2017/08/Long-term-loans-Canada.png
How To Get A Long-Term Loan In Canada

By Caitlin Wood, BA
Updated on July 3, 2025

Long term loans are loans with a payment plan of at least five years. Mortgages and even certain personal loans are considered long term.

https://loanscanada.ca/wp-content/uploads/2023/12/loan-payment.png
What Happens When I Can’t Make My Loan Payments?

By Caitlin Wood, BA
Updated on July 3, 2025

Are you missing loan payments? What happens If you can't pay your loan? Finf out what happens and what you can do.

https://loanscanada.ca/wp-content/uploads/2015/08/loans-for-low-income.png
Personal Loans For Low Income Earners

By Bryan Daly
Updated on July 2, 2025

Loans for low income. What are they and how do consumers with low income find the best options for their needs? We have the answers.

https://loanscanada.ca/wp-content/uploads/2025/06/Pay-Personal-Loan-Early.png
Paying Off A Personal Installment Loan Early: Pros And Cons

By Priyanka Correia, BComm
Updated on June 26, 2025

Can you pay off a personal loan early in Canada? Find out if paying off a personal loan early is worth it for you.

https://loanscanada.ca/wp-content/uploads/2022/03/Financing-a-Tiny-House.png
Tiny Home Mortgage In Canada

By Lisa Rennie
Updated on June 24, 2025

Thinking of buying a tiny home instead of a regular house? Find all the tiny home mortgage options in Canada.

https://loanscanada.ca/wp-content/uploads/2018/08/Loans-with-a-cosigner.png
Types Of Loans You Can Get With A Cosigner

By Lisa Rennie
Updated on June 13, 2025

Personal loans with a cosigner are a no-brainer for borrowers with low credit or those who want to qualify for lower rates and better terms.

https://loanscanada.ca/wp-content/uploads/2018/07/Loans-with-a-guarantor.png
How To Get A Guarantor Loan In Canada

By Bryan Daly
Updated on June 12, 2025

Looking for loans with a guarantor in Canada? We have all the information you need about guarantor loans, check out this article.

Recognized As One Of Canada's Top Growing Companies

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers