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 subprime 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?
✓ Correct answer: a) 1 only
ExplanationA teaser loan is a loan with an initially low-interest rate for a fixed period, after which the rate increases gradual- ly.They are commonly used in home loans, credit cards, and other financing schemes to attract borrowers.State Bank of India (SBI) introduced teaser loans in 2009 for home loans in India.Subprime lending is the practice of lending to borrow- ers with a low credit rating that may be exposed to the risk of default in future.Statement 1 is correct : Teaser loans are often linked with subprime lending practices, where loans are extended to borrowers with lower creditworthiness.The low initial rates can lure borrowers who may struggle to repay when the rates increase, leading to a higher risk of defaults in the future.After the initial low-rate period ends, borrowers may face significantly higher payments.If they are unable to meet these higher payments,defaults can occur.This puts financial institu- tions at risk and can contribute to broader economic instability.Statement 2 is incorrect : Teaser loans in India are not primar- ily given to inexperienced entrepre
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