Are floating rates better for Auto Loans?

What do you think, should I go for Fixed loan or the floating loan?

This is the question that many ask from me. So I thought about this and here is the answer.

 

The government's liquidity tightening measures this year have pushed up interest rates and slowed down offtake of auto loans. While interest rates have not fallen significantly yet, most experts say they will in future. Typically, the price of an auto loan is set for the entire loan tenure. But now some banks, such as State Bank of India and ICICI Bank, have started offering floating rate loans too. When interest rates are going down, floaters allow you to reduce your liability. Should you then

go for them?

The floater rationale

ICICI Bank's auto loans head, N.R. Narayanan, says: "Many customers told us that they were not going in for car loans now since they were expecting the interest rates to get better (fall). We thought we should offer them the floating rate scheme so that they also get the benefit if at all the rates fall." He says ICICI Bank's rates are linked to floating reference rate (FRR), the benchmark used for its home loan floating rates.