Lamborghini Urus S
Finance Products Explained 25 Mar 2024

Fixed vs Variable Finance Rates Explained

There are a multitude of industry terms and jargon within car finance that can send your head into a spin. With any finance package you will hear the terms ‘fixed’ and ‘variable’ rates mentioned, so when sourcing the most appropriate finance agreement for your next car, it is your Account Manager’s job to ensure you understand the benefits or risks that come with the various options that you may be eligible for, and each option will be discussed thoroughly to ensure that your finance proposal is most suitable to you and your circumstances.

Sourcing a finance agreement for your next car is a bit like a mortgage agreement for a house, that is why choosing to arrange your agreement through a broker is the same as using a mortgage broker to source the most suitable package for you. Most finance products are not jut for brand new vehicles from a franchise dealership, but can be available for everything from preowned cars from a dealership, a vehicle purchased at a car auction, or even for a private sale. Here at Oracle Car Finance, we understand that picking the right car finance product might not always seem straight forward, therefore our experts are on hand to help you find the right product for your needs.

Fixed vs Variable Finance Rates Explained - Range Rover Sport SV
Image courtesy of Land Rover

Fixed Rate Loans Explained

On fixed rate loans, interest rates stay the same for entirety of the loan’s term and will therefore not change with fluctuation in the market, allowing the borrower to have standardised monthly payments.

It is, of course, a popular choice for those who prefer the stability of their outgoings, knowing that a set amount is due each month and you can budget your other expenditures accordingly. You can then just continue to pay the same amount until the end of the agreement.

With a Hire Purchase agreement or ‘HP’, once all of your monthly payments are made, the vehicle is yours; alternatively, you might consider a Personal Contract Purchase agreement or ‘PCP’, often reducing your monthly payments by giving you the option to settle any outstanding loan amounts in one final balloon payment. Once this agreement has come to the end, you can also speak to us about the option to refinancing the balloon payment within a new agreement.

Variable Rate Loans Explained

Essentially a variable rate loan means the monthly cost may fluctuate both up and down in line with the market. The variable rates are based on an index, such as the base rate set by the Bank of England which often influences the interest rates charged by other banks and lenders.

Most lenders will set their interest rates based on the base rate, then apply their own credit-based margins. If you have an excellent credit score, your interest rate may be lower, however a poor credit score will often result in a higher interest rate. Regardless of your score, remember that your interest rate may vary to reflect any changes to the base rate. So, if the base rate increases or decreases by 0.5%, the interest rate you pay is likely to change by the same amount.

Fixed vs Variable Finance Rates Explained - Aston Martin Vantage
Image courtesy of Aston Martin

Which Type Is Most Suitable For Me?

The answer depends on a multitude of variances and also which option suits you and your circumstances more appropriately. Deciding on the best type of interest rate for you and your situation requires careful consideration, which our team of experts are more than happy to assist you with by explaining many of the advantages and disadvantages so that you can make an informed decision. Variable rates may result in cheaper monthly payments from the beginning, but the risk is that they can change at any time and are affected by the market as a whole. Therefore, it is important to build enough margin into your budget to accommodate for any changes. However, many prefer to have the peace of mind of knowing the same amount is due each month, if this is something that seems more suitable then a fixed rate may be the better option.

Excellent, So What Now?

If you are ready to start discussing your next car then now is the time to look at what car finance options are available for you, regardless of if you have found the perfect vehicle yet or not. A call with your dedicated Account Manager is the best way to see your available options and to discuss your requirements for your finance package. Our team of dedicated Account Managers are always on hand to discuss these options alongside our range of finance products. To speak to an expert and get your free finance quotation, call us on 0800 012 6666 or complete our short online form.

Voted ‘Best Specialist Car Finance Provider’ four years in a row at the Car Finance Awards 2020, 2021, 2022 and 2023 having funded over £1.9billion and counting, Oracle Car Finance are the UK’s number 1 funder for prestige, sports and classic cars. Make sure you follow us on InstagramLinkedIn and Facebook to keep up to date with what’s happening in the market and to see some stunning photos and videos of the amazing cars we fund.