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Interest Rates- IV

Some days ago I wrote about how banks are taking advantage of customers by being very proactive in increasing the rate of interest but they are a bit slow to decrease the rates when the rates drop for a floating rate of interest loan. The worst part was that in case you wanted to prepay the loan the bank had the right to charge you a prepayment penalty. So we the consumers were loosing if we continue with the loan and we were loosing in case we decided to prepay the loan.

Now fortunately the RBI, has decided to act and is recommending to the banks that there should not be any prepayment penalty on the borrowers who prepay the loan where the rate of interest is floating.

I think this is a very good development and will help a lot of borrowers who want to prepay or foreclose their loans by making payments ahead of time. So what should you do in case you have a floating rate of interest? I think one should check with the lender what will be the process of prepaying the floating rate of interest and if some surplus funds are available one can think of prepaying. For the time being banks will continue to charge the prepayment penalty for the fixed rate of interest loans.

Thanks for reading

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