Floating-Rate Loans

Recently, Reserve Bank of India (RBI) proposed new loan interest-rate framework, tighter rules for floating-rate loans

What are Floating Rate Loans?

  • Floating rate loans are loans that have an interest rate that changes periodically, depending on a benchmark rate or the base rate.
  • This base rate, such as the repo rate - rate at which RBI lends money to financial institutions - is influenced by market forces.
  • Floating-rate loans are also known as variable or adjustable-rate loans, as they can vary over the term of the loan.
  • Floating rate loans are common for credit cards, mortgages, and other consumer loans.

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