KATHMANDU: If you are planning to buy a vehicle with bank financing, this could be the most favourable time for you as bank interest rates are currently at a five-year low.
Three years ago, loan interest rates had reached 15–16%. They have now dropped to an average of around 7.5%. Borrowers from banks offering even lower base rates can secure auto loans at just 6–6.5%.
The main reason for this drop in loan interest rates is the decline in banks’ base rates. As banks have continuously lowered deposit interest rates, their costs have decreased which have brought the average base rate down to 5.83%—the lowest in five years.
Banks have been reducing interest rates on deposits since October, 2023. This has lowered their costs and, in turn, base rates, which has also made loan interest rates significantly cheaper.
Currently, banks add a maximum 5% premium to the base rate when providing loans. The minimum premium depends on the borrower’s bargaining power. Some banks are offering loans with a minimum premium of just 0.5%.
Among government-owned banks, Rastriya Banijya Bank Ltd has the lowest base rate of 4.72%. Customers able to bargain can secure loans at 6–6.5% from the bank.
The banking system presently has more than Rs 1,000 billion in liquidity. Loan demand has been weak due to a slowdown in economy, leaving banks flush with loanable funds. As a result, banks are providing loans at premiums as low as 0.5% As a result, borrowers can now get loans at interest rates of as low as 6%, almost half of what they were 3–4 years ago.
For customers seeking fixed-rate loans, banks are also offering affordable auto loans. Fixed-rate auto loans are available at 7.5–10% for tenures of 5–7 years.
Base Rates of Commercial Banks Compared
Loan affordability largely depends on the base rate of banks. Banks with lower base rates can offer cheaper loans, while those with higher base rates tend to charge more.
Banks adjust the premium rates depending on loan types. At present, commercial banks are providing loans by adding a maximum premium of 5% to the base rate. However, some banks have been offering loans with a premium of as low as 0.5%.
Among 20 banks, Standard Chartered (foreign-owned) has the lowest base rate at 4.6%. However, the bank does not provide auto loans.
Among government-owned banks, Rastriya Banijya Bank Ltd has the lowest base rate of at 4.72%. Customers able to bargain can secure loans at 6–6.5% from the bank.
Other banks with base rates below 6% include Everest Bank, Nepal Bank, Global IME Bank, Agricultural Development Bank, Nabil Bank, Nepal Investment Mega Bank, Sanima Bank and Machhapuchhre Bank. These banks also provide loans at around 7% when a minimum 1% premium is applied.
Similarly, NMB Bank, Nepal SBI, Siddhartha Bank, Citizens Bank, Prabhu Bank, Laxmi Sunrise Bank, and Kumari Bank have base rates below 6.22%. Loans from these banks are available at interest rates of 7–7.5%.
On the other hand, Himalayan Bank, Prime Commercial Bank, and NIC Asia have relatively higher base rates, making loans slightly more expensive from these institutions.
