[ecis2016.org] Any loan which is offered at a lower interest rate for a fixed amount of time in the initial period as a purchase incentive is called teaser loan
Banks come out with various offers and deals, to make borrowing cheaper for the applicants. One such instrument is teaser loans. This could be for any kind of loan, including personal loan, car loan or home loan. Teaser loans are one of the popular promotional products used to attract borrowers, as it enables loan issuers to offer customisation to their applicants.
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Loans on which banks charge comparatively lower rates of interest in the first few years of the repayment tenure are known as teaser loans. After a specific time frame, the interest rates are increased.
For example, if you opt for a home loan for a period of 30 years at an interest rate of 8%, the bank may offer you a teaser loan for which you would need to pay only 6% interest in the initial three years. In the fourth year, your interest rate will switch to 8%. Credit cards with zero or low introductory offers and adjustable-rate mortgages, are some of the common teaser loans. If you are opting for a teaser loan, you must be aware of the rate of interest that will apply after the teaser rate expires.
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- Teaser loans with low interest rates, help borrowers to save considerable amounts of money on interest costs.
- Borrowers must know the rates that will apply after the teaser rate expires.
- Borrowers should clearly understand the payment terms and requirements detailed in their loan contract, before agreeing to a teaser loan’s terms.
- Teaser home loan products have been withdrawn in India, after the Reserve Bank of India’s (RBI’s) directive, to link all home loans with an external benchmark lending rate (repo rate).
- The RBI has not banned teaser loans but its disapproving stance has kept lenders from offering such promotional products in India.
- Recently, some of the big carmakers have joined hands with banking institutions, to offer teaser car loans to boost car sales amid the COVID-19 pandemic.
FAQs
What is a teaser loan?
A teaser loan offers a lower rate for a short period, before adjusting to the normal interest rate.
What is a teaser interest rate?
A teaser interest rate on a credit card can be as low as 0%.
What is the duration of a teaser loan?
The duration of the discounted interest rate in a teaser loan is generally one to three years, after which the prevalent floating interest rate will apply.
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