Variable interest rate

A variable interest rate changes over time, typically in relation to an underlying benchmark, such as the prime rate. Thus, if the underlying benchmark declines, a borrower is charged a lower interest rate, with the reverse occurring if the benchmark increases. Variable interest rates are commonly applied to credit card debt and other forms of short-term debt. These rates can be dangerous for a highly-leveraged business, since a jump in the underlying benchmark can make it difficult for the firm to make its scheduled interest payments.

Related Courses

Corporate Cash Management 
Corporate Finance