Fixed or Variable Truck Financing?

June 20, 2011 12:38 PM

A friend of mine is looking at buying a truck. It's about 28K CAD before tax, and he is wondering if he should go with a finance package offering 3% variable or 5.68% fixed over 72 months. What is your opinion?
posted by Frasermoo to work & money (3 answers total)

It depends on what limits (if any) there are on how often the variable rate can adjust, and how far it can adjust each time.
posted by Thorzdad at 1:08 PM on June 20, 2011

Also important is where you believe interest rates are headed in the next six years. It's in the finance company's interest to sell variable rate loans when they think interest rates are headed up so you should keep that in mind.

Of course if he plans to sell before the loan is paid off then adjust your interest rate outlook accordingly.
posted by tommasz at 1:17 PM on June 20, 2011

Interest rates are unlikely to go down (much) as they're at a historical low point, but they might not go up much either. At 5.78% your friend will be paying approx $1600/year in interest. They might want to look into whether you can make additional payments without penalty, then pick a payment they can afford and then pay extra.
posted by blue_beetle at 2:26 PM on June 20, 2011