Which term describes a loan with a fixed rate of interest?

Which term describes a loan with a fixed rate of interest?

• A. Variable Rates of Interest
• B. Fixed Rate of Interest
• C. Short-Term Loan
• D. Long-Term Loan

Answer: (B)

Understanding how interest is set on a loan helps you predict payments. A loan with a fixed rate of interest has the interest rate locked in for the term, so the amount of interest in each payment stays the same and total payments are predictable. This is why the term "fixed rate of interest" is the best description for a loan with a fixed rate. In contrast, a variable rate can move with market rates, changing payments, while short-term and long-term describe how long the loan lasts rather than how the interest is set.

Understanding how interest is set on a loan helps you predict payments. A loan with a fixed rate of interest has the interest rate locked in for the term, so the amount of interest in each payment stays the same and total payments are predictable. This is why the term "fixed rate of interest" is the best description for a loan with a fixed rate. In contrast, a variable rate can move with market rates, changing payments, while short-term and long-term describe how long the loan lasts rather than how the interest is set.