A Significant development has occurred in the financial market.

For the first time, customers in the country have the option of variable interest rate loans versus fixed interest rate loans.

Bank of Bhutan (BoB) recently revealed its variable interest rate loans and other banks are expected to follow suit. We are hopeful that the variable interest rates offered by the other banks are competitive.

The introduction of the variable interest rate is important for us, the customers, because until now we’ve been charged, in our view, high interest rates. The fixed interest rates we’ve been charged so far had a very comfortable margin with the central bank’s base or minimum lending rates, which some observed, translated to easy money for the banks. There was no risk for them, and only for the customer.

With the introduction of the floating interest rate, the risk is, at least in the layperson’s view, shared by both the customer and the bank. The benefits of a floating interest rate is that it is usually lower than a fixed interest rate to begin with. But since it depends on market conditions, the rate could possibly go even lower than the initial rate or even above the fixed rate during the tenor of the loan. The risk exists for both sides. However, what we do welcome is that the customer, now, at least has a choice of the product or service.

There will be pros and cons in choosing to go with either of the interest rates. It would be advisable that customers thoroughly research and consult with experts before choosing which interest rate to go with.

It is hoped that we can see even more diversification in products and interest rates eventually. A third option of a floating interest rate is provided by BoB, with a 5-year reset in interest rate.

Similarly, we hope to see other loans that offer options such as split loans where customers can opt to pay a fixed rate for a certain percentage of the loan and a variable one for the rest. There are also other products offered elsewhere such as the introductory rate loans where customers pay a low interest rate for the first and perhaps second year of a loan, following which a higher interest rate comes into effect.

Having a diversified range of loan products is worth exploring, so that consumers can choose what’s best for them.