Why is the offering of “teaser loans” by commercial banks a cause of economic concern?
- The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future,
- In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2011 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 or 2
Answer: (a)
Explanation:
- Teaser loans are a type of loan that initially offers a lower interest rate for the first few years before increasing the rates later on.
- SBI introduced the concept of teaser rates for home loans in November 2009.
- These loans are associated with subprime lending, which involves lending to borrowers with a low credit rating and a higher risk of default.
- However, it is important to note that teaser loans are not limited to home loans and can be extended to entrepreneurs as well.
