For many American bankers, the spot between a rock and a hard place is getting to be familiar territory. On one side, there is public pressure to lower consumer loan rates. With other interest rates going down, people wonder why they can't get lower rates when they want loans for cars, home improvements, or personal loans.
On the other side, however, the banks don't want a repeat of the situation made famous by home mortgages a year or two ago: Money had been lent out for long periods at low interest while the cost of this money to the banks was volatile and generally upward.
For many bankers, then, the solution for consumer loans was to borrow an idea from their mortgage departments: the variable-rate loan.
''We don't want to fix our rates in such a way that we bring on a recurrence of the problems we had in 1981,'' says Jack H. Shipman, executive vice-president of Liberty National Bank in Louisville, Ky. ''Put another way, we don't want the S&Ls' [savings-and-loans'] problems.'' Mr. Shipman is also chairman of the consumer finance committee of the American Bankers Association.
Another banker recalled that at an ABA meeting in Atlanta a few weeks ago, variable-rate loans were the ''big topic.'' If the banks have not already begun making such loans, the banker said, most are planning to do so.
At his bank and at most others offering this type of loan, customers can select a fixed-rate or variable-rate loan. A recent breakdown of the rates at Liberty National showed the variable rate on a home-improvement loan was 12.9 percent, compared with 15.5 percent for a fixed rate. For a car loan, the variable rate was 12.75 percent, vs. 14.5 percent for a fixed rate. And on an unsecured personal loan, the rates were 13.5 percent and 15 percent, respectively.
Basically, there are three types of variable-rate loans. The first two should usually be avoided, if possible.
The first is a so-called ''balloon'' loan. Like the home mortgage that also bears this name, you get a low rate when the loan is first taken out. But after a certain period of time, the bank can either ask you to pay the rest of the loan in full or refinance it at the rate in effect at that time, which may be higher. While this type of loan may be manageable for something that escalates in value, like home improvement, it should not be used for depreciating property , like a car or stereo system.
In the second type, the monthly payments on the loan can change, usually after 12 months. The payments can go up or down, depending on what happens to interest rates generally. For people who fully expect their incomes to go up or have a current expense that will be ending soon, this may not be an inconvenience. But for those operating on fairly tight budgets or living on fixed incomes, the uncertainty of not knowing what your monthly payments will be next year can make financial planning difficult.
In the third type of variable-rate loan, the size of the monthly payments always stays the same. What can change is the term, or number of payments you are asked to make. So if you have a 36-month loan on which you are paying $150 a month, the bank may add a month or two to your payments if interest rates go up, giving the loan a 38-month term. And if rates drop, the number of payments can decrease.
''As long as you've got a $150 expenditure in your budget,'' Mr. Shipman explains, ''an extra month or two probably isn't going to matter that much. And if you get to make fewer payments, well, that's just like a bonus for you.''
It takes a big jump in interest rates, Mr. Shipman added, to tack on two full payments. On a $3,000 loan with an original term of 30 months, a four-point rise in interest would only add one-half of an additional payment.
The fact that interest rates are going down and seem to be stabilizing has caused some banks to drop previously laid plans for variable-rate loans, said a spokeswoman for the Consumer Bankers Association, a group representing many of the larger banks. At some banks, however, that very situation is even more reason to pursue variable loans: While they may have been a defensive weapon, used to protect banks from rising and volatile rates, now they are an offensive weapon, to help them compete for those customers who have returned to the borrowing market.
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