Question

Which is true of variable-rate loans? (1 point)

Responses
( ) The rate can only go down.
( ) The rate can go up or down, depending upon the index it is tied too. (This is the selected answer)
( ) The rate can only go up.
( ) The interest rate can fall below 0.

Answer 1

Your selected answer is correct.

Variable-rate (adjustable-rate) loans have interest that changes over time based on a specified index plus a margin, so the rate can rise or fall as that index moves. (Lenders may use caps/floors to limit how much the rate can change; negative nominal rates are very rare and typically not applicable to ordinary consumer loans.)