Teaser loans

News:The Reserve Bank of India(RBI) may not allow State Bank of India(SBI) plan to offer teaser loans.

Facts:

About Teaser loans:

  • Teaser loans are those which charge comparatively lower rates of interest in the first few years after which the rates are increased.

Why RBI is against teaser loans?

  • The RBI feels that some borrowers may find it difficult to service the teaser loans once the normal interest rate which is higher than the rate applicable in the initial years, becomes effective.
  • In addition, a bank, while extending the loan does not take into account the borrowers repayment capacity after lending rates increase.
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