Which option best explains fixed interest rates?

The concept of fixed interest rates is best captured by the idea of consistency throughout the loan's duration. When a loan has a fixed interest rate, it means that the interest charged on the principal amount remains the same for the entire term of the loan, regardless of changes in market interest rates or other economic factors. This provides borrowers with a sense of predictability in terms of their monthly payments, as they can plan their budgets without worrying about fluctuating interest costs.

In contrast, rates that change based on the inflation rate or rates that adjust quarterly introduce variability that can affect how much a borrower ultimately pays over the life of the loan. Additionally, the notion of interest that compounds annually pertains more to how interest accrues over time rather than whether the rate is fixed or variable. Thus, the characteristic of having a consistent rate throughout the loan's duration is what distinctly defines fixed interest rates.