Are you looking for a personal loan this year?
Then, there might be an unwelcome change in store for you. For the first time in four years, the RBI increased the repo rate by 0.40% to control the inflationary pressure on the economy.
But what does this mean for you?
An increase in the repo rate or the rate at which RBI lends to the commercial banks means a hike in the cost of personal loans for potential borrowers. Naturally, this will result in an increase in the loan interest rates and higher EMIs for borrowers like you.
Let’s explore this decision in detail and understand its impact on loan borrowing.
Repo Rate Hike – What Does It Mean?
An increase in the repo rate means two things for the consumers. One, it will make borrowing expensive, and two, it will result in more competitive savings.
Here’s how it works: a higher repo rate increases the cost of finance for banks – leading to a higher cost of borrowing, making the EMIs a little heavier on your pockets.
Since the cost of borrowing is higher, banks will prefer to up their cash reserves through savings accounts and fixed deposits.
Thus, a repo rate hike allows the banks to offer better interest rates on deposits. This means that you might get a better offer now if you are looking to open a savings account or start an investment like a fixed deposit.
How Will It Impact the Loans?
Here’s how an increase in the repo rate will affect the borrowers-
Impact on Interest Rate – A repo rate hike will lead to higher floating rates.
Since many loans such as personal loans or car loans are offered at floating interest rates, a high repo rate means higher interest rate payments for you, whether you are an existing or a new borrower.
Higher EMIs – Will the latest announcement affect your EMIs? Well, yes! An increase in the repo rate means greater interest, leading to higher payments each month. So, a 0.40% hike in the repo rate means you’ll have to shell out more each month for your EMI payments.
Costlier Loans for New Borrowers – If you were planning to opt for a loan to meet your diverse financial needs, the repo rate hike would mean costlier loans, owing to the higher interest rate.
Is There a Solution?
A rise in the repo rate is sure to leave potential borrowers concerned. However, you can tackle this hike by making pre-payment or refinancing your loan to a lower rate.
Additionally, since a longer repayment tenure easily translates to a higher interest overall, you can save significantly by opting for a short-term on your personal loan.
Even though a short-term loan means you’ll have to pay higher EMIs, it will keep your overall interest payout low while allowing you to close the loan early. Sounds like a win-win, doesn’t it?
Final Word
With RBI’s latest decision, opting for a personal loan might become a costlier affair. However, it is still one of the best ways to tackle all your financial emergencies with ease. So, don’t wait to get a personal loan!
With many banks providing you the option to apply for a personal loan 100% online and paperless way, you don’t need to visit the bank and wait for days to get approval.
Apply for a personal loan today!