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Auto Refinance

SEP 20, 2022

Variable versus fixed interest rates for auto loans

There are multiple types of auto loans available including variable-rate and fixed-rate loans.



5 min read

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Auto loan rates can fluctuate depending on a number of factors. Interest rates can vary considerably based on the individual lender, lending institution, and loan characteristics. To ensure you receive the most beneficial interest rate possible, it’s important to know what type of auto loan is appropriate for your financial situation.

There are multiple types of auto loans available including variable-rate and fixed-rate loans. It’s important to understand the factors that could impact your interest rate before making a final decision as to which one is right for you. Let's talk about some of the main differences between these two types of auto loans as well as some strategies you can use to obtain a good rate.

Defining auto loan terms

Auto loans are used to finance the purchase of a new or used vehicle. They are defined in our auto loan term glossary as:

  • Auto loans are loans taken out by customers to purchase a vehicle. A customer may also take out an auto loan to refinance an existing loan secured by their vehicle. Since a car, truck, or SUV can have such a high price point, you may not have enough cash on hand to purchase the vehicle in full. Instead, you can take out an auto loan on your new or used car, drive it home from the dealer, and then pay off your vehicle over a set period of time using monthly payments.

A loan’s term, interest rate, and other details factor into the total cost of the loan. The auto is secured by the vehicle. If the customer defaults on the loan, the lender can repossess the vehicle to satisfy the loan. If the lender does not sell the vehicle at a high enough price to pay off the loan, the customer is generally required to pay the difference.

Fixed versus variable rate APRs

As you can see, the lender lends you the money you need so you can pay for your new or used vehicle. Typically, these loans come in two varieties: fixed-rate and variable-rate car loans.

Fixed-rate auto loans offer consumers a more rigid interest rate that remains the same over a set period of time, also known as the loan term. These fixed rates typically begin at a set APR like 2.99% APR, but some lenders may offer fixed-rate loans as high as 10% APR or more. The benefit of having a fixed rate is that consumers can predict their cost of financing and will know what their monthly payments will be before they start shopping for a vehicle. They are also more common than variable-rate loans.

Variable-rate auto loans have an interest rate that can change according to market conditions or the consumer’s ability to make payments on time. Rates may fluctuate up or down within certain ranges, like upwards of six percentage points for example, so it’s possible that you may receive an inexpensive car loan rate while another borrower may receive a more expensive rate depending on things like if they’re late on payments. Variable rates can begin at 2.99% APR, but some lenders may offer as high as 20% APR depending on credit and payment history. Additionally, these loans can have longer payment terms that range between 36 and 84 months depending on the individual qualification circumstances.

Looking for a fixed-rate loan?

Take advantage of a fixed-rate auto loan refinance through Caribou. Ask about how you can help protect your vehicle by adding extended vehicle protection.

Fixed interest rates: How they work

Fixed-rate auto loans are often more popular than variable rates because they offer a set interest rate, which is less likely to fluctuate than a variable-rate loan. With fixed rates, the amount of interest you pay stays the same for a specified amount of time. Fixed-rate loans often work best for individuals who have a steady income and a healthy car budget. Typically, car owners can receive the best rates available by refinancing their existing car at a fixed rate or working with an institution that offers these loans.

Fixed rates through Caribou

Thinking about refinancing your car loan at a fixed rate? Caribou can help! We help you find rates from the top lenders around the country. You could save $100+ a month on your car loan*.

Variable interest rates: How they work

Variable-rate loans are based on an index, which is a set of rates that fluctuate with market conditions and Federal Reserve lending rates. The interest rate can change to reflect the current market value and changes in your credit score. That means your monthly payment may also change. If you have a variable-rate loan, the interest rate can vary depending on the index. These loan types are less optimal during times where interest rates are rising because of inflation, as seen in 2022.

Some indexes are fixed, like the Prime Rate, while others can fluctuate and change more often on a daily or weekly basis. If your index increases significantly, your interest rate will usually also increase proportionately. However, if the index decreases, your interest rate may decrease as well or remain constant. With variable-rate loans, it’s important to understand what can cause these interest rates to change so that you don’t run into unexpected costs later down the line.

Which type of interest rate is best for you?

Knowing which type of car loan interest rate is best for your particular situation is important to getting a rate that works for you. Keep in mind that during hard economic times, variable rates can fluctuate based on lending market conditions, so there’s always the chance you may end up upside down in your loan. If you are thinking about a variable loan, check the economic forecast to see how circumstances may change in the coming months and/or years.

If your loan includes add-ons like extended vehicle service plans or car key replacement programs, then a fixed-rate loan may be more beneficial since they can be easily included. Fixed-rate loans can also be a better option if you are interested in paying back your auto loan quickly. This is because the interest rate on a fixed-rate loan will remain the same over the life of the loan and will not change throughout its term. Learn more about auto loan refinancing through Caribou.

Through Caribou, you could start saving today!

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* This information is estimated based on consumers who were approved for an auto refinance loan through Caribou on or after 1/1/2022, had an existing auto loan on their credit report, and accepted their final terms. As of 9/27/2022, borrowers who refinance save an average of $111.16 per month. Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.

+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

++ Social security number is required should you choose to move forward in the loan application process.

** APR is the Annual Percentage Rate. Your actual APR may be different. Your APR is based on multiple factors including your credit profile and the loan to value of the vehicle. APR ranges from 2.32% to 36.00% and is determined at the time of application. Lowest APR is based on loan amount of $45,000 and is available to borrowers with excellent credit and only in certain states. Advertised rates and fees are valid as of 8/5/2022 and are subject to change without notice. Lowest rate of 2.32% APR only available with a 36-month repayment term. Insurance savings will not result from lower APR.

Terms and Conditions apply. Caribou reserves the right to modify or discontinue products and benefits at any time without notice. Participating lenders, rates and terms are also subject to change at any time without notice. The information you provide to us is an inquiry to determine whether our lenders can make you a loan offer. If any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Offers not available in MA, MD, MS, NE, NV, WI, WV.

Insurance products offered through Bindable and Caribou Insurance Services, LLC. Caribou is working with Bindable who owns MyLifeProtected and MassDrive Insurance Group, LLC, the licensed agent for all products.