The Reserve Bank of India (RBI) recently announced a 25 basis points hike in the repo rate, and this directly affects the country’s credit. The EMIs for those with existing Personal Loans on floating interest may increase with some banks already hiking their interest rates in response to RBI’s increase in repo rate. If you are considering a Personal Loan in the near future, first compare the Personal Loan interest rates offered by various lenders before finalizing your decision.
Must Read: 5 Do’s To Consider Before Taking A Personal Loan
● What is Repo Rate?
It is the rate at which the RBI lends money to commercial banks. These banks usually borrow from the RBI when they are short on funds. If the repo rate is hiked, like it has been to 6.25% in this case, banks will have to pay more interest to the RBI, a burden that will then be borne by consumers. The key reason for the hike is rising oil prices pushing up inflation.
● What is Reverse Repo Rate?
It is the rate at which commercial banks lend money to the RBI. An increase in the rate indicates a fall in the RBI’s money supply. Currently, the reverse repo rate has been adjusted to 6% from 5.75%.
● How Will the Repo Rate Hike Affect Your Personal Loan EMI?
Now that the RBI has hiked the repo rate, banks have already started increasing the interest rate charged to their Personal Loan customers. However, this is subject to the lender’s profitability. A lender with weaker profits is likely to pass on the burden of having to pay more to the RBI to the customer. However, a lender making strong profits is likely to absorb the hike and will pass on the burden to the customer only if the repo rate continues to rise.
What Are Your Options?
If your lender is planning to hike the interest you have to pay on your existing Personal Loan, you may want to consider transferring your loan to another lender offering better rates. If you are in the process of considering a Personal Loan, consider borrowing from an NBFC whose Personal Loan interest rates are more competitive.
Moreover, you can benefit greatly from opting for the Flexi Loan facility, which allows you to borrow money as and when you need it from your sanctioned limit. You can withdraw multiple times based on your requirements, and pay interest only on what you use rather than the whole sum sanctioned. This way, you can save on interest costs. Further, you can choose to pay interest-only EMIs to reduce your EMIs by up to 45% and repay the principal amount at the end of the tenor. When you choose this facility, you can also make part pre-payments at no cost.
You can also find out your pre-approved offer on a range of financial services like Personal Loans, home loans, business loans, etc to save time and get instant financing. Simply enter your basic details and check your pre-approved offer.
● Will Loan Rates Go Down Soon?
This is the first repo rate hike since 2014, and elevated inflation because of rising oil prices and weak exports means the RBI does not expect interest rates to fall any time soon.
While there is no immediate relief in sight for those with Personal Loans, there are cost-effective options available. So, use a Personal Loan EMI calculator to find a loan with EMIs that you can afford, and plan your repayment to enjoy a stress-free borrowing experience.
Must Read: Highly Rated Advantages of Personal Loan that You Must Know
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