Rising interest rates: Is there a worry of defaults?
Although it is always better to go for a higher EMI as against a longer tenure, the borrower must be prudent enough to analyze whether he will be easily able to pay the extra cash outflow.
September 17, 2011 / 09:38 IST
By Adhil Shetty, CEO, BankBazaar.com
On June 16, 2011 in its mid quarter policy review, RBI again hiked its basis points by 25bps. The past 18-20 months have seen a frenzied action in the interest rate scenario. Even with the RBI trying to fight inflation tooth and nail by increasing rates on one front, on another front every bank and financial institution has been passing on the burden of this interest hike almost directly to the borrower. This in effect means that some customers are being charged more that 2-3% than what they were paying in 2009. Therefore, a higher interest rate would mean that customers have to pay more out of their pocket towards servicing their loan. With most borrowers, living on a paycheck to pay check lifestyle this extra burden is bound to tighten their cash flow. This could in turn prompt them to default. On the other hand, will it actually? The answer is No. Interest rate hikes resulting in increase in defaults is a farfetched idea. Here
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