- Fixed
- Payment locked for the agreed period
- Variable
- Tracks a reference rate, usually Bank Rate
- Early repayment
- Fixed can carry break costs
- Best for
- Fixed: certainty; Variable: flexibility
How fixed-rate pricing works
A fixed rate locks your repayment for an agreed period regardless of what happens to base rates, giving certainty for budgeting and covenant compliance. The trade-off is usually a break cost or early repayment charge if you want to exit or refinance before the fixed period ends.
How variable-rate pricing works
A variable rate moves with a reference rate, typically Bank of England Base Rate or SONIA plus a margin, so your repayment rises and falls over the term. Early repayment is usually more flexible, but budgeting requires tolerance for the payment amount to move.
When each option wins
The right choice depends on your appetite for repayment certainty and your exit plans.
- Fixed wins where budget certainty matters, such as covenant-heavy facilities
- Variable wins if you expect to repay or refinance early and want to avoid break costs
- Fixed wins in a rising rate environment if you can lock in before further rises
- Variable wins if rates are expected to fall over your holding period
Hybrid and capped structures
Some lenders offer capped-rate or partially fixed structures, tracking a variable rate but with a ceiling above which it can't rise, giving some downside protection without the full break-cost exposure of a pure fixed deal. These aren't available from every lender and usually carry a modest premium.
Frequently asked
Are break costs always charged on fixed-rate loans?
Not always, but many fixed products include an early repayment charge or a costs-of-funds break calculation if you exit early — check the offer terms carefully.
Can I switch from variable to fixed partway through a loan?
Sometimes, subject to the lender's product range and any switching fee, though not all facilities allow it mid-term.
Which is cheaper over the life of the loan?
It genuinely depends on rate movements over the term — there's no reliable way to know in advance which will cost less.
Do all commercial lenders offer both fixed and variable options?
No — some specialist and short-term lenders only offer one pricing structure, which can influence which lender suits your case.
Is a capped rate a good middle ground?
It can be, offering some protection against rises while avoiding full fixed-rate break costs, though it usually costs slightly more than a pure variable product.
Weighing up fixed against variable?
Tell us your plans for the facility and we'll show you real fixed and variable quotes for comparison.
Related reading
Situations this applies to
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