Fixed vs variable personal loans

Personal Finance · 03 Apr 2020

When you're choosing the best personal loan for your circumstances, there are a few terms it's important to know.

When you're choosing the best personal loan for your circumstances, there are a few terms it's important to know. One of these is knowing the difference between a fixed and variable loan, so you can decide which is the right choice for you.

These terms refer to the interest rate you'll be charged on your personal loan repayments:

Fixed rate loans keep the same interest rate throughout the life of the loan

Variable rate loans have an interest rate that changes with the market rate

Both types of loans have their advantages and disadvantages. Learning what these are and how they apply to you will help you to make an informed decision.

What is a fixed loan?

Fixed rate loans are secured at a stable interest rate for the whole term of the loan. This means you'll always pay the same interest rate you were given when you first applied for the loan (as long as you keep up with your repayment schedule).


  • You know exactly how much you have to pay each month
  • It's easier to budget and set financial goals with confidence
  • You'll be protected if market interest rates rise


  • If the market interest rate drops, you could be paying higher interest with a fixed rate
  • The repayment period may be shorter compared to a variable rate loan (up to 5 years)
  • Some fixed rate loans don't allow for early repayment of the loan if your circumstances change, or they may charge high fees for doing so. However, Harmoney doesn't charge any early repayment penalties for fixed rate loans.

What is a variable loan?

Variable rate loans are tied to market interest rates and change according to the underlying economic climate. This means that if the market rate increases during the lifetime of your loan, you'll end up paying more than you would have with a fixed loan. On the other hand, you could end up paying less.


  • You could pay less overall if market interest rates drop
  • Repayment periods can be longer than for fixed loans (up to 7 years)
  • You may be able to redraw from your loan if you need urgent cash


  • Your repayments will increase if the market interest rate rises
  • Less certainty for the future, which can make budgeting and financial planning more difficult
  • Lenders must be conservative when assessing how much you can afford, and will always calculate your repayment capacity at a higher rate than offered, to ensure you can continue to pay into the future should interest rates on your loan increase.

Which type of personal loan is right for me?

Both fixed and variable rate loans have their advantages, so the choice comes down to individual preference and what's safest for your financial situation. Economists can speculate on how interest rates are likely to change in the next few years, but no one has a crystal ball and you shouldn't put your faith in economic forecasts when making important financial decisions.

Your lender can calculate a fixed loan repayment that's affordable for your budget. If you'd struggle to pay more than that amount every month, a variable rate could be too big a risk if the interest rate rises. For larger loan amounts, even an increase of 0.5% could have a big impact on your total cost of borrowing over the whole term of the loan.

Remember, a 'fixed rate' can still vary between different lenders. If you prefer the stability of a fixed rate personal loan, you should compare your options first to find the best deal. Use Harmoney's personal loan calculator to see what you can expect to pay for a fixed loan.

How to apply for a fixed loan with Harmoney

Personal loans offered through the Harmoney marketplace have fixed rates for the life of the loan and are unsecured, to give our borrowers peace of mind. Unlike most fixed loans, we won't charge penalties if you decide you want to pay off your loan earlier than planned.

However much you want to borrow, all Harmoney personal loans involve a simple three-step process:

  1. Tell us how much you want to borrow and provide details of your financial situation, so we can assess your eligibility and calculate your repayments.
  2. We'll send you your personal loan offer with your fixed interest rate, borrowing limit and repayment schedule. You can choose to pay weekly, fortnightly or monthly.
  3. If you're happy with these terms, accept your loan offer and receive your money. Most loans are fully funded within 24 hours.

Find out more about our fixed interest rates and fees.

Disclaimer: This article is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances

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