What is a fixed interest rate?

A quick overview

A fixed interest rate stays the same for the length of your loan term. It gives you predictable repayments and protects you from rate rises.

You’re likely about to choose between a fixed and variable interest rate. And it’s a key decision in any business loan. To put it simply, a fixed interest rate gives you certainty. You know exactly what your repayments will be from day one to the final instalment. In this article, we’ll explain how fixed rates work, the pros and cons, and when it makes sense to lock in your rate.

What is a fixed interest rate?

A fixed interest rate means the rate stays the same for the entire loan term. Unlike a variable rate, it doesn’t go up or down based on market changes. This gives you certainty with your repayments. For example, if you lock in a 7.5 percent fixed rate on a five-year equipment loan, you’ll pay the same interest every month for five years. You don’t need to worry about rate rises. This structure is useful if your cash flow is tight or you want to keep things predictable.

Fixed interest rates in the context of asset finance

In Australian asset finance, fixed interest rates are common for equipment loans, chattel mortgages, and commercial vehicle finance. Most lenders offer fixed options with terms from one to five years. Brokers often recommend fixed rates when a business needs stable repayments or when rates are expected to rise. It also helps with budgeting and forecasting. The trade-off is that fixed loans usually have early payout penalties if you want to refinance or exit early. That’s why structuring the loan the right way from the start is important.

A transport company in Melbourne finances two new trucks with a five-year fixed rate loan. The broker locks in a 6.9 percent rate before a predicted rate rise. Over the life of the loan, competitors with variable rates end up paying more. Because their repayments are locked in, the business can forecast expenses and take on new contracts with confidence.