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 in advance, which makes planning simple and removes a variable from any strategy that leans 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 is simply better, because the loan rate is only half of the equation. Your cash value keeps earning while it collateralizes the loan, which is the mechanism that makes policy loans interesting in the first place, 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 adjust the dividend on borrowed values, the direct recognition question, which changes the spread again, and 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 historically spent stretches cheaper than fixed ones, and companies using them sometimes credit borrowed values more generously, but you carry the rate risk. Read your own contract's loan provision. It's short, and the rate type is stated plainly.
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. The habit of paying attention decides whether borrowing stays safe, and our using it page covers what a healthy borrowing rhythm looks like.