Variable Interest Rate Cap in Bank Loan: An analytical study of Jordanian legislation

Abstract

Variable Interest Rate Cap in Bank Loan:

An analytical study of Jordanian legislation

Abstract:

The study aimed to identify the existence of maximum limits for the variable interest rate in the loan granted by the commercial bank to the customer. To achieve this purpose, the study used the descriptive analytical legal approach, where the articles of the Jordanian legislation and the relevant instructions of the Central Bank of Jordan were presented and analyzed.

The results showed that the control that governs the current variable interest rate is the agreement of the contracting parties in the loan contract and the instructions of the Central Bank. As the provisions of the Civil Code and the relevant Murabaha system are not considered legislative frameworks for determining the maximum limits for interest rates on bank loans.

And that the Central Bank, according to its latest instructions, indicated that the interest rate in a loan contract with a variable interest rate consists of two parts: a fixed part throughout the lifetime of the contract and another variable part linked to a reference interest rate. And that the bank is not entitled, on its own will, to modify the interest rate if it does not link the changed part of it to a reference interest rate in the contract.

In conclusion, the study formulated a number of recommendations, including that the central bank should set a maximum limit for the fixed part of the variable interest rate.

Keywords: Interest Rate Cap, Variable Interest Rate, Nominal Interest Rate, Real Interest Rate, Effective Interest Rate.