Among the alternatives presented by various credit instruments, is the use of a variable interest rate.

To help you in the process of evaluating this option, we have prepared this article for you. Here you can know what it is and what are the main characteristics of the credits with this modality of interest.

What is a variable interest rate loan?

What is a variable interest rate loan?

It is that loan where the interest rate does not remain constant throughout the established payment term. When the loan is finalized, you and the financial institution agree how often the rate is modified. In a period between revisions the amount of your fees is constant, according to the rate in force at the beginning of it. After its completion, a new interest rate goes into effect, and the cycle is repeated.

If the rate is lower than the previous one, then the amount of your fees decreases. If, on the contrary, the rate increases, the amount to be paid in each installment also increases.

Main characteristics of a loan with a variable interest rate

Main characteristics of a loan with a variable interest rate

At the time of formalization, you do not know the amount generated by the interest loan

This is because the interest rate is variable and it is impossible to predict its value. For this reason, the payment schedule included in the contract only presents an initial set of monthly payments, which correspond to the period in which the rate remains constant, until the moment it must be adjusted.

The interest rate varies depending on the economic environment

The interest rate varies depending on the economic environment

The interest rate of this type of loan varies according to the behavior of the national economy. In particular, it is susceptible to some measures that the Bank of Mexico has the power to adopt, and to the variations of a reference rate used by financial institutions called the Interbank Balance Interest Rate (TIIE). This is determined by the Bank of Mexico based on quotes submitted by credit institutions, having as its starting date the publication in the Official Gazette of the Federation. The procedure for calculating said fee is established in Title Three, Chapter IV, of Circular 3/2012 issued by issued by the Bank of Mexico and the Official Gazette of the Federation

The interest rate value is modified at agreed time intervals

The interest rate value is modified at agreed time intervals

Each specific period of time, which is generally 12 months, the interest rate is revised and modified. As you know, in that period the interest rate and the amounts corresponding to your installments remain constant.