Fixed vs variable personal loans explained

The rate you choose will shape your monthly budget

Most UK personal loans use fixed rates, which means your interest and monthly payment stay the same from day one to the final instalment. That stability is why fixed borrowing dominates in 2025, especially with high street banks and major finance companies. Variable rate personal loans exist, but they are less common and often reference the Bank of England base rate. When the base rate moves, your repayment can move too.

The choice is not just about a number on a page. It is about how your money behaves each month. Fixed rates offer predictability that helps you plan, protect against rate rises, and compare the total cost in advance. Variable rates can be cheaper at the start and may fall if the economic winds shift in your favour, but they can also climb. If rates rise and you have not built in a buffer, your budget may feel the strain.

Think about your priorities. If you value certainty and you are borrowing for longer, fixed is usually the safer fit. If you are comfortable with risk, expect stable or falling rates, or you plan to repay quickly, variable might be worth exploring. Either way, affordability should be tested against a higher rate scenario, not the best case.

Understanding APR is not just about percentages - it is about what you will pay in pounds each month.

Kandoo is a UK-based retail finance broker, connecting you with a panel of lenders so you can compare options without trawling multiple sites. While we do not set rates, we help you see how offers stack up side by side, including whether a fixed or variable structure suits your goals.

Key idea: choose the rate type that matches your risk tolerance and time horizon, not just the lowest headline APR today.

Who this will help most

If you like financial certainty and want to plan your cash flow with confidence, a fixed rate personal loan will likely suit you. It keeps your repayment steady, which can be reassuring if your income is fixed or your budget is tight. For larger amounts or terms stretching several years, predictability often outweighs the chance of a slightly lower starting rate.

If you are comfortable with some movement in your monthly payment, a variable rate could work, particularly for short-term borrowing where you intend to clear the balance quickly. You may benefit if rates fall, but you must be willing and able to absorb increases. This path often suits borrowers with a strong emergency fund and flexible budgets.

Know the lingo before you compare

• APR: The annual percentage rate summarising interest and most fees. Use it to compare like-for-like offers across lenders.

• Fixed rate: An interest rate that stays the same for the full term. Your monthly repayment does not change.

• Variable rate: An interest rate that can move up or down, often linked to the Bank of England base rate plus a margin.

• Representative APR: The rate that at least 51% of accepted applicants get. Your personal rate may differ.

• Term: How long you take to repay the loan. Longer terms reduce monthly cost but increase total interest.

• Early repayment: Paying off some or all of the loan before the end. Some lenders charge up to two months of interest.

• Credit profile: Your credit history, score, and overall affordability picture. Stronger profiles usually secure lower rates.

Your options at a glance

1. Fixed rate personal loan for stability Choose a fixed rate if you want a consistent monthly payment and a clear total cost from the outset. This suits multi-year borrowing, tight budgets, and those wary of future rate hikes.

2. Variable rate personal loan for flexibility Opt for a variable rate if you accept payment swings and are confident you could handle increases. It can be attractive for short terms or if you expect rates to fall.

3. Shorter term to limit interest exposure Reducing the term can offset a higher APR by cutting the time interest accrues. Works well with fixed rates when budgeting allows higher monthly payments.

4. Overpayments to manage risk Pick a lender that allows fee-free overpayments. You can reduce balance faster, especially useful with variable rates if you want to get ahead of potential increases.

5. Consider secured options cautiously Some borrowers explore secured loans for larger sums at potentially lower rates. Remember your asset is at risk if you do not keep up repayments.

What it might cost and the risks involved

Can you get approved

Lenders look at your credit history, income stability, existing commitments, and how the proposed repayment fits within your disposable income. For fixed rates, they will typically stress test your affordability at the actual repayment. For variable rates, prudent lenders may consider the impact of a higher rate to ensure you could still meet payments if the base rate climbs. Your employment type, time at address, and credit utilisation all add context to the decision.

A clean credit file and a low debt-to-income ratio improve your chances of securing the most competitive APRs. If your profile is thinner or recently impacted, you may still find offers, but the rate could be higher and the amount lower. Using a broker like Kandoo can help you see multiple options without making lots of separate applications, reducing the risk of unnecessary hard searches.

From search to funds - the practical steps

1. Check credit file and correct any obvious errors.

2. Decide loan amount, term, and rate preference.

3. Use eligibility checks to see likely APR ranges.

4. Compare fixed vs variable monthly repayment impacts.

5. Stress test affordability with a 2 to 3 point rise.

6. Apply with accurate details and supporting documents ready.

7. Review agreement, fees, and early repayment terms carefully.

8. Accept offer and set up Direct Debit promptly.

Pros and cons you should weigh

Before you choose, pressure test your plan

Run the numbers on your actual household budget. Could you still cover essentials if your variable rate repayment rose by 50 to 100 pounds a month. For fixed rates, confirm that the total cost over the term aligns with your goals and that any early repayment charge is acceptable if you plan to clear the balance early. Keep an eye on economic updates about the Bank of England base rate, as they can shift the picture quickly. Finally, read the small print so nothing about fees, payment holidays, or forbearance policies surprises you later.

Alternatives if neither option fits

1. 0 percent purchase or balance transfer credit cards for short-term needs if you can clear within the promotional window.

2. Credit union loans with community-focused underwriting and often competitive fixed rates.

3. Overdrafts for brief cash flow gaps, ideally repaid within weeks to limit cost.

4. Secured homeowner loans for larger sums, acknowledging property is at risk.

5. Salary advance or employer lending schemes with transparent costs and payroll deductions.

FAQs

Q: Are most UK personal loans fixed or variable? A: Most are fixed. Fixed rates dominate the personal loan market, giving consistent repayments across the term.

Q: When might a variable loan be sensible? A: If you plan to repay quickly, have a buffer, and expect base rates to fall or stay low, a variable structure could be cost effective.

Q: Do fixed loans always cost more overall? A: Not always. While the starting APR may be higher than variable, the certainty can prevent cost creep from future rate rises and may suit longer terms.

Q: How are variable loans set in the UK? A: They typically track the Bank of England base rate plus a lender margin, so repayments can move with economic conditions.

Q: Can I switch from variable to fixed later? A: Some lenders allow refinancing, but it involves a new application and credit check. Fees or settlement interest may apply.

Q: Will early repayment save me money? A: Usually yes, because interest accrues daily or monthly. Check for early repayment charges, often up to two months of interest.

What to do next

List your must-haves, including maximum monthly budget and desired term. Compare real repayments for fixed and variable quotes, then stress test the variable option against a higher rate. If you want broad market visibility in one place, Kandoo can help you check eligibility and compare offers without unnecessary applications.

Important information

This guide provides general information and is not personalised advice. Always consider independent financial advice if unsure. You must be 18 or over and a UK resident to apply. Late or missed payments can seriously affect your credit rating and may make future borrowing more expensive.