What is the difference between a fixed rate and a floating rate loan?

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What is the difference between a fixed rate and a floating rate loan?

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With fixed-rate loans, the firm makes fixed interest payments over the life of the loan. With variable-rate loans the loan’s interest rate (and thus the interest payments the firm must make) changes over the loan life. A floating rate is set at a fixed spread over a prevailing benchmark rate, such as a Treasury-bill rate, the federal funds rate, or a prime rate. If the benchmark rate rises during the loan period, so does the firm’s loan cost.

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