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| Say good bye to teaser rates |
| BS Reporter / Mumbai Jan 30, 2010, 00:31 IST |
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Banks may not be raising rates for the moment, but the teaser rate retail loans seem set to go off the shelf soon.
Most of the teaser rate schemes, that offer a fixed-cum-floating rate option to borrowers, are due to end by March 31. With RBI setting the stage for a rate hike in the coming months, these schemes, where the rates are fixed for the initial two-three years, were unlikely to get fresh extensions, bankers said.
“These rates will be there till the end of March. After that, we will see,” said Union Bank of India Chairman and Managing Director MV Nair.
“Our consumer loans are appropriately priced and we don’t expect rates to go up here. The wholesale lending rates need to be looked at in the short and medium term,” Standard Chartered Bank Chief Executive officer Neeraj Swaroop told reporters. The foreign bank does not offer any fixed-cum-floating rate scheme at present.
Once teaser rates go, borrowers will have no option but to avail of floating rate loans.
To counter this, borrowers can shift their loans to existing teaser loan schemes. In the past few months, all leading banks have come up with hybrid loans. Under these schemes, interest rates are fixed for the first few years. Later, these are aligned with market rates. For instance, HDFC is offering an 8.25 per cent fixed rate until March 2012 if a customer takes the loan before April 1. Some of the banks with dual rates are State Bank of India, ICICI Bank, Axis Bank, Canara Bank and Kotak Mahindra Bank.
However, it is important to remember that a prepayment penalty has to be paid to the existing lender. This may offset the benefit of lower rates.
It is important to look at the number of years left to pay off the loan. For example, if someone has 15 years left, it makes sense to prepay and shift. But, if only two-three years are left, it does not make sense.
Car loan and personal loan seekers may also find things a bit tighter. For car loan borrowers, there would be a double whammy. With car loan rates already on the rise, a rise in interest rate will increase costs significantly. “If the vehicle purchase is necessary, the customer can postpone it by a few months, increase the down-payment and take a smaller loan,” said a certified financial planner.
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