Impact of RBI’s Lending Guidelines

8 Sep 2023

Context:

RBI introduced guidelines enabling a borrower to transition from a floating interest rate-based loan to one with a fixed interest rate.

More on News:

  • According to RBI, the endeavor was to address borrowers’ grievances pertaining to the elongation of loan tenure and an increase in the EMI amount in the event of an increase in the benchmark interest rate.
  • The provisions would be extended to existing as well as new loans by the end of the current calendar year.

Differences between the two exchange rates systems:

Basis Fixed Interest Rate Floating (Variable) Interest Rate

 

Meaning Fixed Interest Rates remain constant throughout the life of the loan. Rates can change periodically, usually in accordance with a benchmark rate, market conditions, or the lender’s discretion.
Initial Rates Typically start higher than initial rates for floating rate loans since lenders charge a premium for the certainty of fixed payments. Often start with lower initial interest rates than fixed-rate.
Advantages Benefit from protection against interest rate increases regardless of fluctuations in market interest rates. Borrowers may benefit from potential rate decreases.

Significant Impacts of Lending Guidelines:

  • Risk Management and Cost Savings: Borrowers can switch to a fixed rate during times of rising interest rates to protect against future increases and switch to a flexible rate during times of falling rates to take advantage of lower costs.
  • Improved Budgeting: Switching to a fixed rate can provide stability and predictability, while a flexible rate may offer lower initial payments.
  • Transaction Costs: Switching between fixed and flexible rates may involve transaction costs, which can erode any potential interest rate savings.
  • Complexity and Uncertainty: Frequent rate switches can introduce uncertainty into borrowers’ financial planning, as they may not know when to switch or how future interest rates will change.

News Source: The Hindu

Archive Calendar

Mon Tue Wed Thu Fri Sat Sun
 123
45678910
11121314151617
18192021222324
25262728293031

Need help preparing for UPSC or State PSCs?

Connect with our experts to get free counselling & start preparing

Know about Physics Wallah

Physics Wallah is an Indian online education platform, that provides accessible & comprehensive learning experiences to students of classes 6 to 12 and those preparing for JEE and NEET exams. We also provide extensive NCERT solutions, sample papers, NEET, JEE Mains, BITSAT previous year papers, which makes us a one-stop solution for all resources. Physics Wallah also caters to over 3.5 million registered students and over 78 lakh+ Youtube subscribers with 4.8 rating on its app.

We Stand Out because

We successfully provide students with intensive courses by India's qualified & experienced faculties. PW strives to make the learning experience comprehensive and accessible for students of all sections of society. We believe in empowering every single student who couldn't dream of a good career in engineering and medical field earlier.

Our Key Focus Areas

Physics Wallah’s main focus is to create accessible learning experiences for students all over India. With courses like Lakshya, Udaan, Arjuna & many others, we have been able to provide a ready solution for lakhs of aspirants. From providing Chemistry, Maths, Physics formulae to giving e-books of eminent authors, PW aims to provide reliable solutions for student prep.

What Makes Us Different

Physics Wallah strives to develop a comprehensive pedagogical structure for students, where they get a state-of-the-art learning experience with study material and resources. Apart from catering students preparing for JEE Mains and NEET, PW also provides study material for each state board like Uttar Pradesh, Bihar, and others.

Aiming for UPSC?

Download Our App

# #
Quick Revise Now !
AVAILABLE FOR DOWNLOAD SOON
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध
Quick Revise Now !
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध

<div class="new-fform">






    </div>

    Subscribe our Newsletter
    Sign up now for our exclusive newsletter and be the first to know about our latest Initiatives, Quality Content, and much more.
    *Promise! We won't spam you.
    Yes! I want to Subscribe.