Question

What is the advantage of a variable-interest loan?

Review Later

Borrower can capitalize on a reference rate decrease

Reduces the total interest payments

Protects the borrower from rising interest rates

Makes it easier for the borrower to plan for future payments


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Answer 1

Borrower can capitalize on a reference rate decrease

Step-by-step explanation:

Variable interest rate is the floating interest rate, which changes with change in the interest rate given by central bank. It is not fixed it can vary. It might be increased or decreased time to time.

As a borrower Increase in interest rate will result in loss because due to variable nature we need to pay more interest and decrease in interest rate will result in profit because due to variable nature we need to pay less interest