Banks and financial institutions currently provides loans at single point interest. If you can justify the income by pledging the property, you can get a personal housing loan up to a maximum of Rs 15 million. In the midst of the Covid-19 pandemic, the NRB has directed to provide loans at fixed interest rates in the real estate and auto sectors. Banks and financial institutions have also introduced fixed interest rate loan schemes. There are various payment options available for you to repay the loan taken from the bank. The most popular payment plan in Nepal is ‘floating plan’. Ballooning and Reverse Ballooning are also flexible payment systems. Here is list of various loan payment options that is available in Nepal.
Floating plan is the most common loan payment options in Nepal. According to this plan, if the base rate of the bank increases, the interest and installment amount of the bank also increases. Also, if the base rate of the bank decreases, the interest and installment amount of the bank also decreases. Usually, banks extracts interest rates by adding risk premium to the base rate. They set interest rates by adding a risk premium of 0 to 6 percent to the investment sector.
For example, the base rate of any bank is 7 percent and if you add the risk premium to 2 percent, the interest rate on your loan will be 7 + 2 = 9 percent. If the base rate decreases to 6 percent tomorrow, the interest rate will automatically decrease to 6 + 2 = 8 percent. Remember that banks cannot change the risk premium without the consent of the borrower. Besides this, as the risk premium is determined at the beginning, you cannot change it.
Floating interest rate is a pattern in which the interest rate of the borrower changes depending on the change in the base interest rate of the bank. At present, Nepal’s banks have been disbursing loans in this format.
Fixed Interest Rate
Fixed interest rate means you can take a loan at the same interest rate for the entire term of the loan. The advantage of this is that even if the interest rate rises sharply in the financial market, the interest rate on your loan will not increase. However, if the interest rate goes down, you still have to pay the interest rate you set when you took out a loan.
Recently, Nepal Rastra Bank (NRB) has issued integrated guidelines for banks and financial institutions to maintain the same interest rate for the purchase of vehicles and real estate throughout the loan period.
You can take an individual term loans with a repayment period of more than one year without changing the interest rate. No matter how low the base rate of the bank is during the loan period, the interest rate and installment of the loan you have taken will not be changed.
Ballooning plan is another loan payment option that various banks of Nepal offers. This option will definitely make it easier for you to repay the loan installments. Here, if you take a loan of Rs 10 million, the bank will fix EMI on 70 percent of the loan. The remaining 30 percent is given as a balloon loan. Regular installment of Rs. 7 million has to be paid every month. You get a repayment schedule of Rs 3 million every year.
If you get a 10-year repayment schedule, the amount will be Rs 300,000 if you pay at the rate of 10 percent every year. You pay interest of Rs 3 million in the first year on a balloon loan. The second year will be completed in 10 years by paying interest of Rs 2.7 million and the third year by paying interest of Rs 2.4 million. This plan reduces the amount to be paid through interest. Even with this payment plan, you can get a loan at the same interest rate as in the market.
Reverse Ballooning Plan
This payment plan is not available in many banks. A reverse ballooning plan has been introduced to facilitate the repayment of loans in view of the declining income with age.
Under this plan, if you take a loan of Rs 10 million, the bank will divide it into four parts. According to the internal policy of the bank, 25-25 lakhs are made in different tenures. When you take a loan of Rs. 10 million, the monthly installment comes to Rs. 125,000 in the first five years. Then after one year, the one-time installment is reduced to Rs. 85,000. And after the next 5 years, the average is 40 thousand. While in the next 5 years it is reduced to 20-25 thousand rupees.
As you get older, your family responsibilities increases. The expenses for marriage, children’s education and other various work increases while the income will be limited. Therefore, banking institutions has brought the facility of reducing the size of EMI through reverse ballooning.
Re-paying the Loan in Advance. How Much does it Cost?
If you have the required cash, and you wanted to repay the loan in advance, then that option is available too. In this case, if your loan is less than Rupees 5 million. Then you will not have to pay any advance payment fee. If your loan is more than Rupees 5 million then up to two percent pre-payment fee has to be paid.
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