Define: Variable Rate

UK Accounting Glossary

Definition: Variable Rate



Advertisement



Full Definition of Variable Rate


A variable rate is an interest rate that may fluctuate over time. To determine its variable rate, a lender first chooses an interest rate such as the prime rate, the 1-, 3-, or 6-month Treasury bill rate, or the fed funds rate as an index to which the variable rate will be tied. Next the lender adds a certain number of percentage points (called a margin, which varies from borrower-to-borrower depending in part on credit standing) on to the index rate, and that sum is the variable rate. Some lenders multiply the index or the index plus the margin by a set number to generate the variable rate. Opposite to a fixed rate, a variable rate should be lower initially than a fixed rate because of the interest-rate risk inherent in a variable rate (the risk is that a variable rate can increase). Examples of loans that typically carry a variable rate include credit cards, adjustable-rate mortgages, and home equity lines of credit.


Advertisement




Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/variable-rate/
Modern Language Association (MLA):
Variable Rate. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. March 29, 2020 https://payrollheaven.com/define/variable-rate/.
Chicago Manual of Style (CMS):
Variable Rate. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/variable-rate/ (accessed: March 29, 2020).
American Psychological Association (APA):
Variable Rate. PayrollHeaven.com. Retrieved March 29, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/variable-rate/

Definition Sources


Definitions for Variable 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: 5th February 2020.