Get All Access for $5/mo

What You Should Know About Teaser Loans SBI is eager to bring fixed-cum-floating rate loans back, but financial experts advise against them

By Shipra Singh

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.


As the October 1 deadline for banks to link all retail and MSME loans to an external benchmark is nearing, SBI has started the discussion around teaser loans again. Its chairman Rajnish Kumar announced recently that they will seek clarification from the Reserve Bank of India (RBI) on long term housing loans that offer fixed rate initially, and are later linked to a floating rate. RBI has not yet given an official statement on whether teaser loans will be permitted or not.

What is a teaser loan?

Teaser loan is an unofficial term used for loans that offer low, fixed interest rates in the initial few years, but switch to floating rates thereafter. This term was first used by market experts back in 2010 when State Bank of India (SBI) launched a housing loan that charged 8% interest rate in the first year, 9% in the second and third years and changed to a regular floating loan fourth year onwards. The scheme was discontinued in 2011 after repeated pushback from RBI.

While the ultra-low rates might seem attractive at first, financial experts advise that prospective borrowers looking to take a home loan should weigh the pros and cons before rushing headlong into cheap rates.

Unpredictable EMIs later

Experts say that teaser loans can deceive you into locking into cheaper rates at first, but borrower will be in for a rude shock later if rates soar after the fixed rate tenure has ended. "Borrowers should not buy into the narrative of ultra-cheap loans that teaser loans offer on the outset. The prime consideration should be whether they want certainty on their EMIs or they are comfortable with fluctuating installments of a floating loan," says Rohit Shah, Founder and CEO, Getting You Rich. A conservative borrower after paying a fixed EMI for 2-3 years may find it difficult to manage unpredictable EMIs later as it can disturb his budget.

Shah says that in the current low-interest regime borrowers should not commit to fixed rates even for 2-3 years. "So far, problem with variable rate loans has been that banks lagged in transmitting RBI's rate cuts to borrowers but were quick to pass on increase in rates. External benchmarking will, hopefully, fix this problem so borrowers should not rush into locking the current lower rates," he says.

Whether teaser loans will see the light of day or not is yet to be known.

Shipra Singh

Entrepreneur Staff

Freelance Journalist

News and Trends

Dee Piping Goes Public: Announces Initial Public Offering

Dee Development Engineers Limited, commonly known as 'Dee Piping,' has announced its transition into a public limited company.

Business Solutions

Increase Productivity with This Microsoft 365 Subscription, Now $25 Off

It can make the entrepreneur life a lot easier.

News and Trends

Unifi Capital Launches Two New Funds at GIFT City

Rangoli India Fund and G20 Portfolio are the two new funds launched by Unifi Capital, via its subsidiary UIML in GIFT City, to expand international investment opportunities.

Business News

Apple Pay Later Is Ending. Here's What's Taking Its Place.

The program was available for less than a year.


I've Grown a High-Performing Team in Just 2 Years — Here's are 5 Growth Strategies I Learned

A team's strength lies in its people's individual skills and how they synergistically come together.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.