NEWS & ADVICE : CAR LOANS
Floating rate auto loans: Are they really worth?
By Vaibhav Aggarwal
Oct 30, 2007
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New Delhi: Auto loans took the maximum beating when the government to tighten liquidity increased the interest rates. The usual trend in the auto loan segment was to issue loans at fixed interest rates, but with no customers in sight, banks had to introduce the floating rate concept in auto loan segment.

SBI, and ICICI Bank the two stalwarts of Indian banking scenario introduced floating rate auto loans this festive season. Floating interest rates unlike fixed ones are tied to a benchmark lending rate and vary with market fluctuations. Floating interest rates mostly are priced about 50  basis points below the fixed rates. But with no significant reduction in interest rates in sight, are they worth taking?

Justifying the decision of launching floating rate auto loans, ICICI Bank's auto loans head, N.R. Narayanan, said, "Many customers told us that they were not going in for car loans now since they were expecting the interest rates to get better (fall). We thought we should offer them the floating rate scheme so that they also get the benefit if at all the rates fall."

A difference of just 50 basis points isn't too much and there are instances where banks and financial institutions are willing to provide auto loans at fixed interest rates, which are at par or below this floating rate offer. Now, that brings a peace of mind and shields the customer from any fluctuations what-so-ever. Looks like the banks have to spice up their offer of floating rate auto loans to attract more customers.


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