A Variable Rate Loan is a type of loan where the interest rate can change over time. This means that the monthly payments may increase or decrease based on fluctuations in a benchmark interest rate, such as the LIBOR or the Prime Rate. Borrowers may benefit from lower initial rates, but they also face the risk of rising costs if rates increase. These loans are commonly used for mortgages and personal loans. While they can offer lower rates compared to fixed-rate loans initially, it's important for borrowers to understand the potential for payment changes and to budget accordingly for future increases.