We know financial topics can be confusing, with terms and consequences you may not understand. Whether you’re a student or parent, looking for a loan to cover costs now or in a few months, we’re here to help you by clarifying the differences between fixed-rate and variable-rate loans. But we’ll let you decide which option is the best for you! 

 

If you choose a product with fixed interest rates: 

Fixed interest rates means that you pay the same amount of interest over the life of the loan, so it’s easier to budget. With this product, your monthly payments won’t change until you either finish paying off the loan or refinance it. Moreover, the interest rates won’t change regardless of economic conditions around the world. In this way, you’ll always know exactly how much you’ll be paying per month or quarter.

The pros of having a fixed-interest rate product:

– The risk burden is on the lender if the market rate climbs.
– There’s no interest rate increase even if market rates increase.
– The monthly payments don’t increase, so it’s easier to budget.

The cons of having a fixed-interest rates product:

– Rates typically start out higher than variable rates.

 

If you choose a product with variable interest rates: 

Variable interest rates can go up, down, or remain unchanged according to marketing rate or economic conditions, etc. These rates usually start lower than fixed rates, so you might have a slight chance to save money if outside factors don’t cause the variable rates to rise too much. 

The pros of having a variable-interest rate product:

– The rate usually starts lower, so it’s more affordable during the first year.
– You have a chance to save some money if the interest rate doesn’t rise. 

The cons of having a variable-interest rate product:

– The monthly payments are unpredictable, making it hard to budget.
– The total amount of monthly payments could change as the marketing rate changes.

 

Our recommendations for international students:

There is no 100% right answer about whether you should go with a fixed-rate or variable-rate product.It’s best for you to understand the pros and cons of each type and how they affect your situation; your decision should depend on several concrete factors, such as the terms and conditions of your loan and your monthly budget as well as the volatility of the market. To help you decide which product is best for you, check out this chart by Earnest for clarification and more information.

But since MPOWER Financing was recently named the best lender for international students by U.S. News and World Report, as loan experts we suggest that international students don’t take on the burden of risky interest rates and stick with fixed rates. If you go with a variable rate, it will be a gamble because no one knows how the economy will shift or what the market rate will become. All we can do is tell you that according to the interest-rate forecast by Kiplinger, “…expectations of the future path of interest rates…showed a gradually rising trend over the next two to three years.”  

Last but not least, we hope every student can pursue their higher education without financial concerns and will have an awesome experience in the U.S. If you’ve already started taking out loans, read some of our tips to help you save money while paying off your student loans.

 

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DISCLAIMER - Subject to credit approval, loans are made by Bank of Lake Mills or MPOWER Financing, PBC. Bank of Lake Mills does not have an ownership interest in MPOWER Financing. Neither MPOWER Financing nor Bank of Lake Mills is affiliated with the school you attended or are attending. Bank of Lake Mills is Member FDIC. None of the information contained in this website constitutes a recommendation, solicitation or offer by MPOWER Financing or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.