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, the teaser loans are m

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Submitted by examrobotsa on

Q: 80 (IAS/2011)
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, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units?
Which of the statements given above is/ are correct?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,84,95,84,13,74,8

keywords: 

{'teaser loans': [0, 0, 0, 1], 'commercial banks': [0, 0, 1, 1], 'economic concern': [0, 0, 0, 1], 'inexperienced entrepreneurs': [0, 0, 0, 1], 'banks': [5, 6, 5, 25], 'risk': [1, 1, 2, 4]}

The correct option is 1 only.

Teaser loans are loans offered by commercial banks at a lower interest rate in the initial years, after which the interest rate is reset to a higher rate. This practice is considered a cause of economic concern because it can lead to an increase in the number of defaulters in the future. Borrowers may take these loans in the initial years when the interest rate is low, but may not be able to afford the higher interest rate later on, leading to defaults. The practice of teaser loans is considered a form of sub-prime lending, which was one of the reasons behind the global financial crisis of 2008. The second statement about teaser loans being given to inexperienced entrepreneurs is not accurate and not directly related to the concern with teaser loans.