How the Prime Rate Affects Loan Repayment
Changes to the prime rate affect the interest calculations on your loan. When the prime rate changes, the interest charged on your loan(s) change, however, your monthly payment amount will remain the same:
- If the prime rate increases, you will pay more interest.
More of your payment goes towards the interest owing. - If the prime rate decreases, you will pay less interest.
More of your payment goes to your principal owing.
Floating Rate
Interest on both your Alberta student loan and Canada student loan is automatically set at the floating rate. Your interest rate changes when prime rate changes.
Fixed Rate
You can request a fixed interest rate.
| Helpful Tip! If you choose to have the fixed interest rate, the rate used is the rate at the time of the request. After which, you cannot revert to the floating rate. |
Which Rate is Better?
Choosing a floating rate will usually save you money because floating interest rates are lower than fixed rates. This is true as long as the prime rate doesn’t rise dramatically over the term of the loan (the number of years it takes you to pay the loan off in full).
You can compare the cost of choosing a floating rate versus a fixed rate to pay off your loan at: