Interest rates are charged as a margin over a reference rate (for example Bank of England Base Rate or London Interbank Offered Rate (LIBOR2) or the cost of funds for fixed interest rate loans.
- Variable rate – you pay an agreed interest rate margin, which is added to the Bank of England Base Rate or LIBOR. This allows you to benefit if interest rates fall, but could leave you exposed to increased repayments if rates rise. If the loan is repaid early, a prepayment fee may be payable.
- Fixed rates – you have a fixed payment amount so that, no matter what happens to the Bank of England Base Rate, you can be sure of the amount of your repayments for periods of up to 10 years. If the loan is repaid early, a prepayment fee may be payable and if you repay the loan within a fixed rate period, you may also have to pay an early repayment charge.