Hybrid loans – are they beneficial?
By Joseph Samson
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In the era of rising interest rates, the prime concern of the borrower happens to be the right choice of loans. Inflationary pressures have no doubt hit the economy hard but as ever the most hit always happens to be the common man. Costly loans put a halt to a lot of plans set meticulously by people.

When loan rates continue to fluctuate, the borrower is bound to get confused on the kind of loan he should choose which would benefit him the most. A fixed rate loan seems best in a scenario when interest rates are towering high. But the constant hitch that lies within is what if interest rates fall? Especially with long term loans, this doubt is bound to hit the borrower who would then find the fixed rate loan turning costlier to him as compared to the lower interest rates prevailing.

In such dicey situation, a loan product which seems quite viable is Hybrid Loans.

A combination of both the fixed and floating components of loans- hybrid loans were first introduced in India somewhere in the year 2004. The entire loan amount is thus broken into partly fixed and partly floating components.

It is at the liberty of the borrower to choose the tenor of the two components. Thus, if the total loan amount is worth Rs 10 lakhs, then in the present scenario, the borrower can keep 60% of the amount as fixed while the remaining 40% can be kept floating. The proportion can later on be changed by the borrower at his discretion.

However pre closure of the tenor of one component of a loan and switching to the other component might attract conversion charges or prepayment penalty. These charges vary from bank to bank.

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