As we enter the new calendar year, the focus is once again on the interest rates. This time, unlike last year, the rates are showing mixed signs. While deposit rates have already dipped, the lending rates haven’t kept pace with them.
Even banks are playing the waiting game and have created innovative products. That makes life tough for the borrowers as they need to take an informed decision. Here are some tips for choosing your loan:
Many banks have launched hybrid loans wherein the rate is fixed in the first year of the loan period but is linked to the market rate from the second year onwards. Here, the assumption is that the rate would go up at a later date though chances of the rate coming down are not ruled out. For instance, some banks have pegged the first year rate at eight per cent. One of the reasons why the rate could be higher from the second year onwards is the linkage of the rate to the benchmark lending rate which still hovers around 10-11 per cent.
In the last few years, though banks have reduced the lending rate on special products, they have not cut down the benchmark rate. So, Barring home loans, most other loans such as personal loans or overdraft facility continue to attract an interest rate of over 14 per cent. Hybrid loans will be suitable for individuals who are looking at home loans with a tenure of less than 10 years.
Since the interest component of an EMI is large in the initial years, it will be profitable to go for this option even if the lower interest is for a period of one year.
News Published Under: The Hindu