Question

For a fixed-rate loan, the interest rate remains the same throughout the life of the loan. For a variable-rate loan, the interest rate changes based on
A.
the time of year.
B.
an index interest rate set by state governments.
C.
an index interest rate set by individual banks.
D.
the income of the borrower.

Answer 1

For a fixed-rate loan, the interest rate remains the same throughout the life of the loan. For a variable-rate loan, the interest rate changes based on the time of year.

Answer: Option A

Explanation:

Loan rates are classified into two types: Fixed and Variable. In Fixed loan rates the interest rate prevails the same throughout the loan's life. Variable loan rates are also called floating loan rates. This interest rate will oscillate based on the outstanding balance as well as market rates.

These rates will be changed periodically like monthly, quarterly, half-yearly or annual basis. Comparing to the fixed rate, it is harder to estimate the interest rate for the borrowers. It can be increased or even decreased based on the loan's life.