Interest is the cost you pay to borrow money from a lender, typically expressed as an annual percentage rate (APR). Interest adds to the total cost of your loan.

Many private student lenders allow you to choose between a fixed and variable rate. Here’s a rundown on the difference so you know which is best for you.

Fixed Rate: Fixed rate loans remain the same throughout the lifetime of the loan. For example, say you take out a 60-month $20,000 loan at a fixed interest rate of 3.99%, with monthly payments of about $368. Your monthly payments will remain the same ($368) throughout the duration of the loan. In this example, your total repayment amount with interest would be $22,094.

The main benefit of a fixed rate is that your monthly payment will remain the same throughout the life of the loan. This can be an attractive option if you want to know the exact amount you need to pay each month so you can budget accordingly.

Variable Rate: Unlike fixed interest rates, variable rates change throughout the life of the loan. The interest rate will typically change on a monthly, quarterly, or annual basis. Variable rates are typically calculated based on the Secured Overnight Financing Rate (SOFR) — a global market benchmark for many different types of loans and credit cards. If the SOFR falls, so will the rate on your loan. But if the SOFR increases, your interest rate, and monthly payment, will go up with it.

Variable interest rates often start out lower than fixed rates, but since SOFR can fluctuate and change your interest rate, your monthly student loan payments may vary considerably over time.