What is a fixed interest rate?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A fixed interest rate is a loan interest rate that stays the same for the whole term of the loan, or for an agreed period within it. While the rate is fixed, it does not move with market conditions, so the regular repayments for that period can be worked out in advance.
A fixed interest rate fixes the rate, not the interest. On a principal and interest loan with equal regular repayments, each repayment usually stays the same, but the interest part shrinks as the balance falls and the principal part grows. That is why each repayment has to be split using the lender's statement or repayment schedule, rather than recording the same interest figure every month.
A fixed period can also end before the loan does. When an agreed fixed period finishes, the rate and the repayment can change, so the end date belongs in the loan records and in the cash flow forecast, where a new repayment amount would show up first.
In Australia
business.gov.au's glossary describes a fixed interest rate as a loan rate that does not change over the loan's term, or over an agreed timeframe, and a variable rate as one that moves with market conditions over the life of the loan.
Its guide to business loans lists whether the rate is fixed for the whole loan term or variable among the conditions that differ between loans, and among the terms to read carefully before applying. Its glossary describes a fully drawn advance as a long-term loan with the option to fix the rate for a period, and includes switching from a fixed interest rate to a variable one among its reasons for refinancing.
Worked example
| Month | Repayment (AUD) | Interest (AUD) | Principal (AUD) | Balance after (AUD) |
|---|---|---|---|---|
| Start | 50,000.00 | |||
| Month 1 | 1,000.00 | 250.00 | 750.00 | 49,250.00 |
| Month 2 | 1,000.00 | 246.25 | 753.75 | 48,496.25 |
| Month 3 | 1,000.00 | 242.48 | 757.52 | 47,738.73 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording the same interest amount every month because the rate is fixed.
- Forgetting when the fixed period ends, so a change in repayments arrives unplanned.
- Assuming a loan with a fixed interest rate is fixed for its whole term, when the rate may be fixed only for an agreed period.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Apply for a business loan
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.