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:
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:
News Source: The Hindu
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September 8, 2023