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Interest Rate

An interest rate is the percentage of a loan that a borrower must repay on top of repaying the loan itself. There are two kinds of interest rates, fixed interest rate and variable interest-rate.

A fixed interest rate will stay the same for the life time of the loan. So if a business gets a loan with a 6% fixed interest rate, it will never change. The advantage is that you'll always know exactly what you owe for you loan, making it a bit easier to budget for.

Unlike a fixed rate, a variable interest rate can go up or down over time due to changes in the market. The benefit of a variable rate is that, depending on the market, you could end up paying a lower interest rate but the opposite is also true. A variable interest rate loan could start out with a 7% interest rate, and then it might drop down to 5% one month, which means you'd pay less. Then next month it may jump to 6%, increasing your loan payment.