A variable rate of interest, unlike `fixed rate`, may change during the life of an agreement in line with current market conditions.
For example, some agreements – particularly mortgages – ‘track' the Bank of England base rate which will change over time.
This means the rate could go up – costing the customer more; or go down – costing the customer less. This is a risk that is evaluated by the customer before entering into an agreement.
Most secured motor finance agreements charge a fixed rate of interest. Variable rate agreements are less common when interest rates are low or increasing.