Are loan interests going down ? Floating rate is worth of?

[neo_trace]

My cousin is @ to buy a new civic
when he asked icici ..they told 11.75%
my cousin same is getting 10.5 % and floating rate from BOB
I intended to buy new safari 2.2

point is Floating Rate of interest is worth or not?
Interest rates are going down ?

[adityamunshi]

Ya they are going down and getting a floating rate loan would be the wise thing to do.

But im no expert in these things..lets see what the gurus have to say.

[thefreak]

I have the same query. Could someone please elucidate on the working of the floating rates in terms of car loans. Say I have an EMI payment of 15k as of today when the rates are at 11%. Tomorrow the auto loan rates reduce to 8% (I wish) then does my EMI payment come down? In case of floating it should but I was informed otherwise by someone.

IF the rates do come down then the loan rates would be linked to some benchmark figure (say MIBOR).. is it so? None of the banks I have talked to mentioned this. Why so?

[Zappo]

Floating rates will work the same whether it is car loan or the housing loans. The point is that the banks got wise to the fact that the rates keep fluctuating and hence they do not want to get saddled with the low fixed rate disbursals in future. In my case I took a car loan some 2+ years back and till date paying at something around 5.9%. Banks do not want a repeat of this scenario in the future.

How it works? Well, as the rates fluctuate they will increase or decrease the EMI accordingly upto a point. I do not think they would like to increase or decrease the tenure for car loans which are normally of a lower duration than the house loans where they do vary the tenure also if the EMI seems to have undergone too much of a change from the original one.

However do remember one thing. Even if the rates start going down the banks do not want to reduce it so easily. So what do they do? They do not reduce the PLR/benmark rates. Instead they declare rebates/discounted rates. So the new borrowers gets the lower rates (and bank keeps getting business) but the existing borrowers keep paying at the old interest rates (higher).

So then should you opt for it? Well, in the medium term the rates will go down for sure. But no one knows what will happen 2 years hence. So if you are going to borrow for 5 years make sure that somewhere mid-way through you switch over to the fixed rate. Banks charge you a penalty but let you switch from floating to fixed and vice-versa. But do check the bank's terms in this matter before signing on the dotted line.

[anandpadhye]

My take based on floating rate home loans taken by my friends is - go for fixed rate and have the negotioations done upfront. And I recently discovered some lesser known banks (co-operative banks) that have competitive rates to ICICI, etc + no prepayment penalty. Go for these.

[JUDA]

Originally Posted by anandpadhye

lesser known banks (co-operative banks) that have competitive rates to ICICI, etc + no prepayment penalty. Go for these.

Could you please give us the names of the Co-op Bank you are talking about here? And if you could share your experiences you have had with them (If any) thanks.

[thefreak]

Well auto loans and home loans can be very different. Home loans are usually always benchmarked against prime lending rates (eg. SBPAR for SBI). I am not sure this same thing is followed for Auto loans.

@anand - If one is taking home loans today one should go for floating rates. The cycle is on the downside and rates are heading south. The interest rate cycle is usually a four to eight year affair so chance are that at around roughly six years the rates would be back to the current levels and rising. Fixed loans are usually not granted for more than 10 years. Given that we can have two cycles in this time floating should afford less payments - if the rates were at say 8% or so then definitely it would have made more sense in going for fixed rates. All this IMHO.

[rajshenoy]

The whole concept of floating or fixed is quite confusing..

i have taken a floating homeloan from ICICI. now, they kept on increasing it(as it is floating) and now that rates are going down, they are offering discounts to only new customers. i have checked with these guys to find that the reduction is only for new customers(same case with other banks like HDFC)

so i dont think floating rates would mean, interest will reduce when rates reduce(its all in ur hand.. u need to put pressure on these guys to get a best deal)

[anandpadhye]

Originally Posted by JUDA

Could you please give us the names of the Co-op Bank you are talking about here? And if you could share your experiences you have had with them (If any) thanks.

Sorry for a delayed reply - somehow this thread disappeared from my subscription list!

The bank that offered me this is Thane Janata Sahakari Bank. The branch manager is known to me so the features mentioned above are confirmed. The bank has branches in and around Mumbai, Pune and Nashik.

[Sahil]

Wait till 18th Oct , Reliance is due to shake up the interest rates.

[thefreak]

Originally Posted by Sahil

Wait till 18th Oct , Reliance is due to shake up the interest rates.

Is this insider information? Any sources where I can read about them?

PS: sorry for this one but if there is some discrepancy in the website management of team bhp then who do I report to and how?