Variable Interest Rate

Business, Legal & Accounting Glossary

Definition: Variable Interest Rate


Variable Interest Rate

Quick Summary of Variable Interest Rate


An interest rate that moves up and down in line with the base rate. When interest rates fall, there will often be a delay between when the base rate moves and when a bank’s variable interest rate moves, allowing the bank to earn more profits. They also might not pass on the full amount of the movement. The base rate might fall 0.25% but only 0.15% is passed onto customers.




Full Definition of Variable Interest Rate


A variable interest rate is one that fluctuates over time, usually in relation to an underlying benchmark, such as the prime rate. As a result, if the underlying benchmark falls, a borrower is charged a lower interest rate, and vice versa if the benchmark rises. Credit card debt and other forms of short-term debt are frequently subject to variable interest rates.


Synonyms For Variable Interest Rate


adjustable rate
floating rate


Variable Interest Rate FAQ's


Advantages of Variable Interest Rates

In order to attract borrowers, lenders typically set the initial interest rate on a variable rate loan quite low. When the expected repayment period is short, this can work out quite well for the borrower because the loan will not be outstanding long enough for many rate increases to be applied to it.

Disadvantages of Variable Interest Rates

Variable interest rates can be dangerous for a highly leveraged company because a rise in the underlying benchmark can make it difficult for the company to make scheduled interest payments. They are especially concerning when applied to mortgages, because a borrower is at risk of a significant rate increase over the loan’s multi-year term.


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Definition Sources


Definitions for Variable Interest Rate are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 13th April, 2022 | 0 Views.