Car Loan Rates: Fixed vs Variable, Flat vs Reducing Balance
These are two different distinctions. Compare the calculation basis, rate-reset terms and full payable cost before deciding between loan offers.
“Fixed” describes whether a rate changes. “Flat” describes how interest is calculated. They are not interchangeable. Start by identifying both features in each written loan offer.
Two questions for the lender
First, is interest charged on the original principal or the declining balance? Second, is the contractual rate fixed or can it reset? A variable loan needs a stated reference rate, margin, reset schedule and any cap or floor.
The presence of SORA in general financial news does not mean your car loan follows it. Do not choose a loan based on an assumed market rate or a claim that variable rates historically always win.
A flat-rate example
| Annual flat rate | Interest | Monthly payment |
|---|---|---|
| 2.48% | $17,360 | $1,397.14 |
| 2.78% | $19,460 | $1,422.14 |
| 3.50% | $24,500 | $1,482.14 |
Each row assumes the same constant rate throughout. These rows do not model a floating-rate path and are not current quotations. The difference between 2.48% and 2.78% is $2,100 interest over the full term.
How to assess a variable offer
Use the actual repayment method and model the contract’s reset dates. Test a higher-rate path as well as an unchanged one. Check whether a reset changes the monthly repayment, remaining term or another feature. A generic flat-rate calculator cannot answer those questions without the contract.
Certainty has a price, but measure it
A fixed contractual repayment can make budgeting easier. A variable rate may reduce or increase the eventual cost. Neither starts cheaper by definition. Compare effective rates, fees, settlement terms and any purchase discount tied to the finance offer.
If you plan to sell early, request an example settlement calculation at that date. A fixed loan does not always have one standard penalty, and a variable loan is not automatically penalty-free.
Choose within an affordable commitment
Evaluate deposit and running costs alongside repayments. Use the loan calculator for the supported calculation basis and a lender schedule for any variable path. The best comparison is between documented offers, not a forecast of where interest rates will go.
Sources and review date
Reviewed on 13 September 2026. Historical results retain their exercise dates; worked budgets are assumptions, not quotations.