Interest rates on loan can be changed, easily. Just read the agreement.

In case of floating interest rates, take rate change for granted. I read a clause in a home loan agreement of one of India’s largest private sector bank. The clause is that this rate of interest is linked to what is known as its Floating Reference Rate (FRR). And, the bank holds the right to change it at its sole discretion. The bank also holds the right to increase or decrease the EMI at its sole discretion. It’s called adjustable interest rate anyway!

What about fixed rates? I have read that banks do offer something called a fixed rate but then there is a rest clause attached to it. In the agreement terminology, it is known as “Fixed rate of interest with money market conditions.” (This is how ‘fixed’ your interest rate really is). The clause in the agreement goes something like this:

“From time to time, ___ Bank may, in its sole discretion, alter the rate of interest suitably on account of change in ___ Bank’s internal policies or if unforeseen or extraordinary changes in the Money Market Conditions take place during the tenure of the Facility. Thenceforth, the rate of interest varied as aforesaid shall be applicable to the Facility.
___ Bank shall be the sole judge to determine whether such conditions exist or not. If the Borrower/s is not agreeable to the revised rate by ___ Bank then within fifteen (15) days of the receipt of the notice from ___ Bank intimating the change, the borrower (s) shall be entitled to ___ Bank to terminate the Facility and prepay Facility and all the amounts due to ___ Bank in full in accordance with the provisions of the Facility/Agreement relating to prepayment.”

Basically, the bank allows it unlimited wriggle room to increase rates as and when they damn well please. Not that they do that, but they have legal immunity built in because of the clause.