When you borrow against a policy, the interest rate isn't negotiated. It was written into the contract the day the policy was issued, years before you needed the loan, and it comes in one of two flavors. Which flavor you hold shapes how borrowing against the policy feels for the rest of its life.
A fixed loan rate is a single number stated in the contract, permanently. You know the cost of borrowing decades ahead of time. That makes planning easier, and it takes one unknown out of any plan built on policy loans. A variable loan rate moves, typically reset once a year and tied to a published bond index, with limits set in the contract. When market rates fall, borrowing gets cheaper. When they climb, your policy loan climbs with them, and a loan strategy penciled out at one rate can look different a few years later.
Neither one is automatically better, because the loan rate is only half of the equation. Your cash value keeps earning while it backs the loan. That's the whole reason policy loans are interesting, and it's covered in What Actually Happens When You Borrow Against Your Policy. What you actually pay is the spread: the loan rate minus what the collateralized value keeps earning. A 6% loan against value still earning 5% costs you about a point. Some whole life companies also change the dividend on borrowed money. That's the direct recognition question, and it moves the spread again, which is why we've walked that one through separately.
A practical pattern shows up here. Fixed-rate loans pair well with strategies that stay borrowed a long time, because the cost can't drift on you. Variable-rate loans have spent long stretches cheaper than fixed ones. Companies that use them sometimes credit borrowed money more generously too. But you carry the rate risk. Read your own contract's loan provision. It's short, and the rate type is stated right there.
Unpaid loan interest doesn't vanish either way. It gets added to the loan and compounds, and a loan that outgrows the cash value can collapse the policy with a tax bill attached. Loans also reduce your available cash value and your death benefit until repaid. The rate type decides the price of borrowing. Paying attention is what keeps borrowing safe. Our using it page covers what a healthy borrowing rhythm looks like.