Followup: The basics of housing loans
Followup: The basics of housing loans
An addition to my last post on housing loan.
When researching on floating rate loans the general feedback we got was take the loan from any bank, you will end up paying a higher rate of interest once your loan starts. The banks always increase the rate of interest on any existing account, but somehow manage to still give new loans at a lower rate.
The catch here is to understand the concept of a PLR (Prime Lending Rate) that every bank maintains. The PLR is known by differnt names in different banks, but the use is still the same. Whenever a loan is taken the banks give a discount on the PLR. This discount is kept constant throughout the loan tenure. However what most banks do is to keep chanding the PLR and the discount from the PLR that is given.
So there is the answer to one question that I always wondered. How do new loans are still given at a lower rate of interest, even when the rate of interests in general have gone up. The trick lies in the discount given by the banks. The PLR is hiked, whenever the RBI changes any of the finanacial rates. But to keep the competition away, what banks do is to increase the discount from the PLR. Thus still offering the new loans at a lower rate.
The result of a change in PLR is that the rate of interest for existing loan account goes up, as the discount is constant. However, new loan accounts are still being offered at the same rate of interest, although with a higher discount.
So, if you are lucky, try to take the loan when the discounts are high and the PLR is low. That way you can minimize the interest outgo on your loan account.
An addition to my last post on housing loan.
When researching on floating rate loans the general feedback we got was take the loan from any bank, you will end up paying a higher rate of interest once your loan starts. The banks always increase the rate of interest on any existing account, but somehow manage to still give new loans at a lower rate.
The catch here is to understand the concept of a PLR (Prime Lending Rate) that every bank maintains. The PLR is known by differnt names in different banks, but the use is still the same. Whenever a loan is taken the banks give a discount on the PLR. This discount is kept constant throughout the loan tenure. However what most banks do is to keep chanding the PLR and the discount from the PLR that is given.
So there is the answer to one question that I always wondered. How do new loans are still given at a lower rate of interest, even when the rate of interests in general have gone up. The trick lies in the discount given by the banks. The PLR is hiked, whenever the RBI changes any of the finanacial rates. But to keep the competition away, what banks do is to increase the discount from the PLR. Thus still offering the new loans at a lower rate.
The result of a change in PLR is that the rate of interest for existing loan account goes up, as the discount is constant. However, new loan accounts are still being offered at the same rate of interest, although with a higher discount.
So, if you are lucky, try to take the loan when the discounts are high and the PLR is low. That way you can minimize the interest outgo on your loan account.
posted by Sonal at 10:09 PM
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