Fixed Rate vs Variable Rate - Which one should you choose?

Financing is an ideal way to take ownership of commercial vehicles while conserving cash for other business needs and opportunities. The simplest way to finance a truck is through a commercial truck loan which, is similar to a home or car loan. A commercial truck lease or loan consists of monthly payments for the duration of the term, has a low upfront investment depending on the amount of your down payment and can have tax benefits. When you choose financing, there are two types of interest rates to consider:  

Fixed-Rate:

• Has a set interest rate for the duration of the term
• Payments remain the same over the entire term
• Provides economic certainty regardless of the interest rate environment

Variable-Rate:

• Rates fluctuate and are not fixed. This rate is spread over an underlying index, much like a Banker’s acceptance or CDOR
• Payments either stay the same and the term changes or change the payments as the rate fluctuates and the term remains the same
• Longer term variable loans have shown to save the customer money

 
Determining what works for you and your operation takes careful consideration. The following are key points for deciding which route is ideal when contemplating a fixed or variable rate: 

• The current economic cycle - Interest rates can increase or decrease over time
• The duration of the loan - Depending on the economic climate studies have shown that customers will save money for longer duration variable loans
• Cash flow and planning needs - A fixed rate loan allows you to budget a single expense for the entirety of the loan reducing the planning required.

Find out more about your truck financing options by talking to a Brandt Truck & Trailer finance team member. They can help you determine which loan or lease is best for your needs.