When you need funds to make a significant purchase, you might look into a consumer loan. These typically come with either a fixed or variable interest rate, which affects your loan payments. Use this guide to determine which offers the best path for you. 

Variable-Rate Loans

If you like to take risks or plan to pay off a loan quickly, you might consider a variable-rate loan. The interest rates involved are based on an underlying benchmark—usually either the London Interbank Offered Rate (LIBOR) or the Prime Rate. As the market fluctuates the benchmark, the interest rate can increase or decrease. The lender will also include an added margin, which depends on their company policies, your credit score, and loan term. 

Since the interest benchmark on these loans can rise considerably, most lenders provide a term ceiling, but this can still be much higher than the original interest amount. If you live on a tightly fixed budget, this could make payments exceed what you can cover. 

Fixed-Rate Loans

These consumer loans maintain the same interest rate for the entirety of the borrowing period.

While fixed rates are beneficial under any circumstances, they are particularly useful when paying off long-term loans, such as mortgages, home equity loans, student loans, and auto loans. The interest rate tends to be a little higher initially than a variable-rate interest loan. However, since it doesn't fluctuate with increases in the market, you will most likely end up saving money. Having a set payment also makes it easy to plan and budget future finances. 

If you are looking for a consumer loan, turn to Spirit of America Federal Credit Union. Since 1932, this not-for-profit credit union has served military, federal, and post-office employees and their families in Lincoln, NE. They offer exceptional loan packages with low, fixed rates and are insured by the National Credit Union Administration® (NCUA). For more information about their options, visit their website. Call (402) 467-1102 with questions.