One bank offers a 2% variable rate loan, while a competitor offers a 3% fixed rate loan over the same period. it is likely better to choose the fixed rate loan, even though the interest rate is higher, because the rate on the

fixed loan is open to fluctuation
variable loan appears less attractive
variable loan can increase dramatically
variable loan will never increase

The correct answer is: "variable loan can increase dramatically ".

The fixed rate is slightly higher but it is safer in the sense that ensures an stable interest rate throughout the whole loan period.

On the other hand, variable rates are subject to market movements. It could be the case that a sudden and large increase on interest rates in the international markets, directly affects your repayment schedule increasing abruptly the interest amount to be repaid at each instalment.

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