Question

Why is the offering of "teaser loans" by commercial banks a cause of economic concern?

1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future.

2. In India, teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.

Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer 1

Correct Answer - Option 1 : 1 only

The correct answer is 1 only.

• Teaser loans:
  • Teaser loans are loans that offer a lower rate of interest in the first few years after which the rates are increased.
  • SBI pioneered the teaser rate concept in home loans in November 2009.
  • The teaser loans are considered to be an aspect of sub-prime lending. Hence, statement 1 is correct.
    • Subprime lending is the practice of lending to borrowers with a low credit rating that may be exposed to the risk of defaulters in future.
  • It has nothing to do with the experience of the entrepreneurs as the teaser loans are given to entrepreneurs as well as home loans. Hence, statement 2 is incorrect.