Fixed-rate vs variable-rate borrowing

2 min read

Cost certaintyFixed rate

Tracks the marketVariable rate

Term mattersShort-term favours fixed clarity

Certainty versus movement

A fixed rate stays the same for the life of the facility, so your repayments and total cost are known from day one — invaluable for budgeting. A variable rate moves with an underlying benchmark (such as the Bank of England base rate): it can fall, saving you money, or rise, costing more. The trade is certainty versus the chance of a saving and the risk of a rise.

Over a long term, that movement can add up in either direction. Over a short term — where much commercial working-capital borrowing sits — the potential swing is smaller, and the value of simply knowing your cost tends to outweigh a modest possible saving. Read our fixed vs variable guide.

How the term changes the answer

	Fixed rate	Variable rate
Cost	Known up front	Rises and falls
Budgeting	Easy	Harder
If rates rise	Protected	You pay more
If rates fall	No benefit	You save
Best for	Short terms; certainty	Longer terms; rate optimism

For a facility repaid in months, a fixed rate gives clean certainty with little downside. For longer borrowing where you have a firm view rates will fall, variable can pay off — but you carry the risk if you are wrong.

The pounds that matter

Whichever you choose, focus on the total cost in pounds, not the headline rate. A fixed rate that is fractionally higher but wholly predictable can be the better deal for a business that values certainty over a gamble. Model the difference with the loan repayment calculator. See also how business loan interest works.

The Credicorp view

Credicorp's short-term business loans are built around clear, knowable costs so you can budget with confidence — lent to the company with no personal guarantee. For most short-term working-capital needs, certainty beats a rate gamble. Register to apply. Educational content, not financial advice.

Frequently asked questions

Is a fixed or variable rate better for a business loan?

For short-term borrowing, a fixed rate usually wins because it gives certainty of cost with little downside over a few months. For longer borrowing, a variable rate can save money if rates fall, but you carry the risk if they rise. The right choice depends on the term and your appetite for that risk.

Does a variable rate mean my repayments change?

Yes. A variable rate moves with an underlying benchmark such as the base rate, so your repayments can rise or fall over the term. A fixed rate keeps them the same throughout, which makes budgeting simpler even if the starting rate is slightly higher.

Should I focus on the rate or the total cost?

The total cost in pounds. A fractionally higher fixed rate that is fully predictable can be better value than a lower variable rate that might climb. Model both over the actual term and compare what you would repay overall, not just the headline percentage.