Kathmandu-Nepal Rastra Bank has urged customers to pay close attention to interest rates and premium rates when taking loans from banks and financial institutions.

The central bank’s Financial Inclusion and Customer Protection Division warned borrowers to clearly understand such technical aspects during the loan application process.

According to the NRB, loan interest rates provided by banks and financial institutions can be either fixed or variable. A fixed interest rate remains unchanged for a specified period, while a variable interest rate fluctuates depending on changes in the institution’s base rate.

For loans issued under variable interest rates, banks determine the final interest rate by adding a premium rate to the base rate. The premium rate is set based on the borrower’s risk assessment.

As per NRB regulations, once the premium rate is determined and mentioned in the loan proposal provided to the borrower, banks are not allowed to increase it after the loan has been approved. The central bank has also prohibited practices such as offering temporary discounts initially and later automatically increasing the premium rate.

The NRB has therefore advised customers taking loans under variable interest rates to clearly understand the base rate and premium rate mentioned in the loan proposal.

Borrowers have also been urged to obtain detailed information from the lending institution regarding possible changes in interest rates due to fluctuations in the base rate and the date from which such changes would be implemented.