Question on Variable Rate Interest loans

The variable rate loan I'm looking at getting is slightly more expensive than it's fixed rival....8.2% APR right now as opposed to 8% APR fixed.

I think this is a fairly daft question even as I write it but are rates going to go up?...or go up drastically?...or the opposite.
Cue everyone saying that no one knows...

The problem with the fixed rate option is that they don't allow overpaying every month and there is a penalty for early repayment.
I don't mind minor fluctuations in the variable rate...but how exactly is it set? What is the likelihood of wild fluctuations?

I think this is a fairly daft question even as I write it but are rates going to go up?...or go up drastically?...or the opposite.
Cue everyone saying that no one knows...


Lenders will normally price anticipated future movements in rates into the price of their fixed rates. If fixed rates are lower than variable rates then chances are they expect (variable) rates to rise over the relevant term. If you can afford variable rate repayments (i.e. would not be screwed if rates rose by a few %) then going variable is most likely a better bet on minimising overall interest costs over the term of the loan. Of course nobody actually knows what way rates will go in the future but, for what it's worth, the banks have a lot more research, analysis and market insight on their side compared to the average punter.

I don't mind minor fluctuations in the variable rate...but how exactly is it set?

Usually ECB rate plus some margin.

What is the likelihood of wild fluctuations?

Didn't I say that nobody knows! Rates have been quite stable and low for several years now, but past performance etc.

Thanks for your reply Clubman.

I tried about 10 times to reply to this post at home. I'm using NTL broadband. No problem with the site or the connection. Very frustrating!

Anyway...I think I've answered my own question somewhat. According to Bank Of Ireland's website...

"Variable Rate
A variable interest rate moves up and down to reflect changes in the financial market.

Changes in the rate do not affect what you pay each month, but rather how long will it take you to repay your loan. If the interest rate drops over the term of the loan, you will repay the loan sooner. If the rate increases, it may add an additional repayment or two."

So it seems that fluctuations in the interest rate will not affect my monthly payments...which is what I was worried about.

No problem with the site or the connection.

Perhaps it's a local PC/browser problem. Check for some tips.

Changes in the rate do not affect what you pay each month, but rather how long will it take you to repay your loan.

This is definitely not correct for most or all home loans and possibly other variable rate loans whose repayments will fluctuate in line with the underlying rate. Perhaps some personal loans set the repayment up front at a fixed monthly amount and then vary the effective term if/when rates change but I don't know for sure.

Hi Clubman.

I'm not sure what the issue was last night but as I was able to post okay. I found it odd that I couldn't reply as the connection kept timing out. It's not a PC issue as far as I know. I use Spyware doctor, Adaware and AVG for sorting out my laptop and keeping it clean as a whistle from any malicious trojans/viruses etc and update AVG's database daily.

I understand what you're saying about how variable rates normally work and this would have been my understanding of it also. This is a motor loan from Bank of Ireland so they must obviously treat it differently from hom loans etc...

See link - [broken link removed]

This is a motor loan from Bank of Ireland so they must obviously treat it differently from hom loans etc...

OK - maybe some or all lenders do this with motor loans or other unsecured loans as a matter of course.