How the payment is recalculated
The loan is amortised at the starting rate. When the rate changes, the remaining balance is spread over the remaining months at the new rate.
A rise increases the payment; a fall reduces it. The term stays the same.
Worked example
£20,000 at 5.9% over 60 months costs £385.73 a month. After 24 months the balance is £12,698.13.
At 8.4% for the remaining 36 months the payment rises to £400.26. Total interest is £3,666.83.
Budgeting for a rise
Stress-test the payment at 2 or 3 points above the current rate. If it would not be affordable, a fixed rate may suit you better.
Check how often the lender can change the rate and whether there is a cap.
Inputs for the car loan variable rate calculator
Amount borrowed
The amount financed.
Starting rate
The rate for the first part of the term.
Months at the starting rate
How long the starting rate lasts.
Rate after the change
The rate applied after the change.
Full term
The total number of payments.
CALCULATOR QUESTIONS
Car loan variable rate calculator questions
Does the term change when the rate moves?
No. The remaining balance is spread over the remaining months, so the payment changes.
How much does a 2.5-point rise cost?
In the example, the payment rises from £385.73 to £400.26.
Can I switch to a fixed rate?
Sometimes, but there may be a fee. Ask the lender.
Is the rate capped?
Some variable loans have a cap; check the agreement.