For most Nepali households‚ owning a home and a car has become achievable thanks to banks offering home and auto loans at a relatively cheaper rate.Commercial banks have started providing home loans and auto loans at as less as 9.5 per cent interest rate as of now‚ depending on the period of the debt. The rates used to be higher than 11.5 almost a year ago.

For most Nepali households‚ owning a home and a car has become achievable thanks to banks offering home and auto loans at a relatively cheaper rate.

Commercial banks have started providing home loans and auto loans at as less as 9.5 per cent interest rate as of now‚ depending on the period of the debt. The rates used to be higher than 11.5 almost a year ago.

“Since these loans are EMI based even half a percentage point matters to the borrowers‚ so the lower the interest rate the better receptive the public become‚” said head of corporate affairs at Standard Chartered Bank Nepal Diwakar Poudel. Consumer loans are paid back based on equated monthly installments that allows borrowers to pay back the principal and interest every month.

The low base rate — that sets the minimum rate of lending rate based on the bank’s cost of operation — has allowed banks to offer loans at lowered rate. The average base rate of banks stands at nine per cent as of the end of the fourth quarter of last fiscal year.

The lowest interest is being charged by Standard Chartered Bank Nepal for both home and auto loans as its rates start at 9.99 per cent for auto and 9.49 per cent for home. It has the lowest base rate which stands at eight per cent. In terms of auto loan‚ Mega Bank is charging the second lowest interest with a minimum of 10 per cent. Likewise‚ in terms of home loans‚ NIC Asia Bank comes second lowest at 9.99 per cent.

“Mostly in auto loans we provide 80 per cent of the total value while 20 per cent needs to be supplied by the borrower‚ for house loans about 70 per cent of the value is lent by the bank and the rest is furnished by the buyer‚” pointed out Poudel‚ adding that the ratio can go up or down based on the applicant’s profile.

For the banks that are already dabbling in access liquidity‚ home loans and auto loans have also become an effective and safe portfolio to finance of late as the loan is sanctioned only after thorough assessment of the applicant. The maximum rate charged depends on the applicant’s profile — including income‚ credit income and employment and the duration of the loan —shorter the period‚ lower the rate.

Banks like Laxmi Bank‚ Everest Bank‚ NIC Asia Bank‚ NMB Bank and Himalayan Bank have all offered fixed interest home loans for the first few years.

“Residential home loans and auto loans have also started to pick up at our bank as well‚” said CEO of Agriculture Development Bank Tej Bahadur Budhathoki‚ adding‚ “Since we became a multiple banking institution we have been emphasising on expanding other portfolios — home loans have become popular.”

The total loans floated by banks as residential home loans have increased by 26 per cent in the last one year following a dip in the interest rate charged for home loans.

A year ago by early September‚ banks were charging 13.5 per cent on average for home loans that have come down to 12.5 per cent now.

Commercial banks‚ development banks and finance companies have forwarded home loans worth Rs 63 billion by mid-June‚ 2013. The amount of such home loans provided by these financial institutions was Rs 50 billion in mid-July‚ 2012. Likewise‚ auto loans that are included under hire purchase loan have reached Rs 54.3 billion as of mid-June‚ which stood at Rs 48.9 billion last year.

Gradually‚ housing and realty that used to be sailing in troubled waters is also improving. Housing developers used to point at higher interest rates as the reason for slow sales rate of housing units and apartments.

The reduced rates have boosted sales of these homes. The amount of house and land registration fee collected in last fiscal year increased by 11.67 per cent signalling better business.

source:the himalayan times,12 Sep 2013