Which is true of variable-rate loans?(1 point) Responses The rate can only go up. The rate can only go up. The interest rate can fall below 0. The interest rate can fall below 0. The rate can only go down. The rate can only go down. The rate can go up or down, depending upon the index it is tied too.
The rate can go up or down, depending upon the index it is tied to.
The correct answer is: The rate can go up or down, depending upon the index it is tied too.
The correct answer is: The rate can go up or down, depending upon the index it is tied to.
To determine the correct answer, we need to understand what a variable-rate loan is. A variable-rate loan is a type of loan where the interest rate can change over time. Unlike a fixed-rate loan, where the interest rate stays the same throughout the loan term, a variable-rate loan is designed to fluctuate based on a specific index.
When the interest rate of a variable-rate loan increases or decreases, it is usually based on changes in the index it is tied to. Common indices used for variable-rate loans include the Prime Rate, the London Interbank Offered Rate (LIBOR), or the U.S. Treasury Bill rate.
So, since a variable-rate loan is directly linked to an index, the interest rate can go up or down based on changes in that index over time. Therefore, the correct answer is: The rate can go up or down, depending upon the index it is tied to.