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12 April, 18:00

Samantha has a loan with an interest rate of 6.67 percent now, but the rate could increase 2 percent next year. What lending term best describes this loan?

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  1. 12 April, 18:24
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    The variable rate loan term best describes this loan.

    Explanation:

    In these type of loans variable interest rate is charged. A variable interest rate is a floating interest rate on a loan or security (bonds, debentures) that changes over time because it is based on an underlying benchmark interest rate or index that changes periodically. So the interest payment fluctuates with change in benchmark.

    The advantage of a variable interest rate is that if the underlying interest rate or index falls down, the borrower's interest payments also decrease. Accordingly, if the underlying index rises, interest payments increase.
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