Question

One bank offers a 4% variable rate loan, while a competitor offers a 3% fixed rate loan over the same period. Assuming no other differences between the loans, a customer should choose the fixed rate loan because

A) the interest rate is higher and guaranteed to increase
B) the interest rate is higher but will not increase
C) the interest rate is lower and will not increase
D) the interest rate is lower but is likely to increase

Answer 1

With a variable interest rate will move up and down, but a fixed rate will stay.

D. the interest rate is lower but is likely to increase.

Answer 2

The correct answer is option C.

Step-by-step explanation:

A bank is offering a loan for a variable interest rate of 4%.

While its competitor is providing a loan for the same period at a fixed interest rate of 3%.

A customer should choose the fixed rate because it is lower than the variable rate and will not increase in the future as it is fixed.

The variable interest rate is higher than the fixed-rate and is likely to increase in the future. So it will not be preferred.