Are you in need of a loan? Get it now! Seemingly, there are enough indications for borrowers to celebrate the festive season as lenders have been coming out with discounted loan schemes. A sharp drop in interest rates comes as a relief for millions of borrowers. Be it a home loan, corporate loan, auto loan or education loan, this is the perfect time to go in for any. Recently, RBI has cut down key interest rates for the sixth time in last seven months.

To boost economic activity, since October, RBI has cut down the repo rate by 425 basis points. In order to discourage banks from parking surplus cash, it has also lowered the reverse repo rate by 175 basis points. The cash reserve ratio has also been reduced by 400 basis points to increase liquidity in the system.

In a recent move to combat slowing economic growth, it has slashed both repo rate (Short-term lending rate) and reverse repo rates by 25 basis points each, successfully bringing down the key interest rates to 4.75% and 3.25% respectively.

The RBI’s credit policy measures are intended towards enabling the economy to resume its growth path. Efforts were impelled by the Government and the RBI to revive the economy and the corporate sector. In tune with RBI’s consistent efforts to streamline the credit environment in the country many nationalized and private banks have followed the suit.

Trends and time

How long these lending rates follow a certain trend? The future direction of the economy decides the future trend of interest rates. A number of factors influence Prime Lending Rate(PLR) and in turn loan interest rates. Here is a simple guide on dynamics of interest rates. If inflation is anticipated to follow an upward trend, interest rates are likely to increase to keep inflation low. In times of recession, inflationary pressures diminish and so rates can usually be slashed.

Is this the right time to go in for a loan? Yes! This is the right time to borrow money as analysts anticipate further cut in interest rates and economic indicators are also depicting the same scenario. Efforts to rejuvenate the economy will continue. Apparently, the Indian economy is still facing the heat of global economic slowdown. Analysts predict that the effects of economic crisis last at least a year and it takes time for economy to bounce back to the previous growth levels. Inflation rate may further go down thereby prompting further cuts in key interest rates. Consequently, a borrower can have the privilege of getting a loan at lower interest rates. Definitely, over a period of time, interest rates get altered. But, till then you can enjoy the benefit of repaying the loan at lower interest rates. And, you should plan to repay the loan in a short span of time before interest rates go up again so as to reap the benefits absolutely.

•Home Loan

For prospective home/apartment owners, it’s a double bonanza, as not only interest rates are falling making your loan cheaper but also property rates have also started falling noticeably. So, you should go for one in these encouraging times.

Builders have been facing liquidity problems due to credit crunch, but thanks to the slowdown and falling inflation rates, finally there is sharp drop in interest rates. Property rates have gone down by 10-20% since the beginning of this year and further fall down of prices will happen quickly in the next few months. So, as the prices are also bottoming out, this is the best time to go in for investing in real estate.

Interest rates have also been falling steadily. Many lenders like SBI, HDFC Ltd., LIC Housing Finance etc. have slashed their lending rates. And further fall is also expected. Sanjeet D Narain, Managing Director of Narain Corp, says, “Prices would stabilize after another 8 to 10 per cent fall by July or August. So, if you are planning to buy a house, you can start looking out for one now.” Runwal also suggests that you will be able to acquire properties at more realistic prices in this current market scenario.

SBI has announced various schemes. For example, SBI Happy-Home Loan offers loan at 8%% p.a. (Frozen) for a period of one year for new loans sanctioned on or after 2nd February 2009 and at least partially disbursed on or before 30th April 2009. Interest rate will be reset after one year as per contracted rate at the time of sanction of loan. Existing home loan borrowers also benefit from SBI Life-style Loan. It offers 8% p.a w.e.f. February 2009 for a period of one year.

Though SBI is offering interest rate at 8% for one year and 9.5% for a loan upto 20 lakhs for 5 years (after 5 years the interest rate will be altered), it can not be said that it is the cheapest loan available. If you would really like to get the benefit of the scheme, then plan to repay the loan within the stipulated period of 5 years. LIC housing finance and HDFC are also in the race of offering modest interest rates.

• Corporate Loan

Essentially, this is the best time to obtain a corporate loan as well; not only interest rates are attractive, but there are a slew of benefits offered by the Government for corporate sector to bring back the economic activity.

• Car Loans

Many people buy cars availing auto loans. Car loans definitely have grown cheaper. Government has done its share to revive auto market and housing industry. For Nano, there was tug of war between banks to offer attractive lending rates.

• Education Loan

Similarly, after cutting down lending rates for home, auto, agri and SME loans, SBI has slashed interest rates for education loan as well by 0.25%. It has cut the interest rates by 25-125 basis points on education loans. Loans will be sanctioned from May 2009 till September 2009, the period when most of the admissions happen and there is high possibility to go in for education loans.

Though SBI has slashed rates it is not the economical loan available in financial markets. SBI is offering 11.75% p.a. for loans upto Rs 4 lakh. Syndicate Bank is offering at PLR-2% for loans upto 7.5 lakhs. That comes to 10% as their PLR rate is 12.50% and, if the loan is more than 7.5 lakhs the interest rate is PLR-2.5%, comes to 10%. Similarly, central bank is also offering education loan at cheaper rates than SBI. In general, girl students are benefited by 0.50% interest concession further.

Thus, before you prefer any lender, go through the following table consisting current BPLRs of various banks. The recent credit policy announced by RBI has prompted the country’s largest private sector lender, ICICI Bank to cut down the benchmark lending rate by 50 basis points. Punjab National Bank has also slashed benchmark lending rate by 50 basis points to 11%, a move that will benefit millions home, consumer and corporate loan borrowers. However, State Bank of India has already frozen new car loans interest rates at 10% for one year, home loan rates at 8%, Credit to farmers at 8 per cent for a year to stimulate the demand.

Observe from the table that many banks have reduced BPLR in the last few months. And, a number of public sector banks are going for third round of interest cuts from 1st May 2009.

How to select a lender?

• Before you settle down with a particular bank for house loan, research before you choose a particular bank
• Interest rate is the deciding factor to choose your lender. Compare the interest rates offered by different lending institutions
• If you are borrowing a home loan, know the trends of real estate market in your city/town. And analyze if at all market prices will fall down further in few days
• Thoroughly analyze the method that the lender follows for calculating these rates
• The payment structure is the next important factor to be paid attention. Make sure that the mode of payment is suitable and affordable to you
• Beware of the attractive offers for the initial time period. Don’t make a hasty decision by considering 8 or 9% interest rates because these rates might change probably in near future, but calculate the overall impact over the life of the loan
• Consider the down payment required by different lending institutions
• Check if the prepayment facility is available. The borrower must have an option of prepaying the loan amount when he has necessary money
• Know the rules and regulations that the lender follows in case of floating interest rates. Check out whether the benefits of lowered interest rates will be extended to an existing borrower. Think twice before you settle down with either fixed or floating interest rate.

Said it all! What are you waiting for? Grab the opportunity!