The Reserve Bank of India (RBI) decided to increase the repo rate by 50 bps to 4.9 per cent during its monetary policy meeting on June 8, 2022, after a 40-basis-point hike on May 4, 2022. The result will be a direct impact on borrowers who intend to take a car loan, home loan, personal loan or gold loan in the near future, as lending rates by banks and NBFCs are anticipated to rise. Borrowers will have to pay higher EMIs as the loan has become costlier due to the increase in repo rate.
How will home loan EMI be affected?
On 10-02-2022, the repo rate remained at 4.00 percent, the repo rate remained unchanged at 4.00 percent in the RBI’s MPC meeting on 08-04-2022, and the repo rate was raised to 4.40 percent by RBI. In the MPC meeting on 04-05-2022, and the current MPC meeting on 08-06-2022, the repo rate was increased to 4.90 percent, which means that the total repo rate for the financial year 2022 increased by 0.9 percent Is. In response to the hike in policy rates, lenders like banks and housing finance companies may increase their lending rates, resulting in an increase in your EMIs.
For example, if you have an outstanding home loan 20 lakh for a tenor of 30 years at the current interest rate of 7.1 percent from SBI, your EMI will go from from 13,441 14,675, a jump of 1234, if the SBI home loan interest rate increases from 7.1 percent to 8%. Similarly, SBI car loan interest rate is now 7.45 per cent per annum, if you have outstanding 10 Lakh Car Loan With Tenure Of 20 Years, Your EMI Will Increase from 8,025 8,584, an increase of 559, if the SBI car loan interest rate increases from 7.45 percent to 8.35 percent. Similarly, SBI personal loans now have an interest rate of 7.05 per cent per annum; If it rises to 7.95 percent, your outstanding personal loan Will see an increase in EMI from 10 lakhs with tenor of 10 years from 11,637 12,106, an increase of 469 per EMI.
How to reduce high loan EMI?
Existing borrowers can use the balance transfer option to reduce their EMIs. It is a service that allows customers to transfer their total outstanding loan balance to another bank which gives them a lower interest rate on the outstanding loan amount. This is the best option when the outstanding loan amount is high, but processing fees and other related charges should be considered. The second option is full or partial prepayment, which helps existing borrowers to reduce their debt burden. This option helps those who have enough spare money, become debt-free sooner, and does not have any negative impact on one’s credit score.
New borrowers can opt for a loan with a higher down payment to reduce their EMI burden, or a loan with a longer repayment tenure to reduce the outstanding balance in monthly installments. Customers who have a solid relationship with their bank can also take loans through their existing banks, where interest rates can be negotiated. Alternatively, new borrowers can simply look for banks or NBFCs that will offer them lower rates on their preferred loan type.
RBI Governor Shaktikanta Das in his statement today noted that “at the long end of the money market period structure, interest rates on 91-day Treasury Bills, Commercial Papers (CPs) and Certificates of Deposits (CDs) strengthened following the rate hike in May. In. Yields on AAA rated 5-year corporate bonds also rose. The rate hike also triggered an upward adjustment in benchmark lending rates by banks. Fixed deposit rates of banks have risen and stabilized amid rising credit demand The funding resources will increase.”
Reflecting on RBI’s decision today, Mr. Manoj Dalmia, Founder and Director, Proficient Equities Pvt Ltd said, “RBI has increased the repo rate by 40 bps to 4.9%, keeping the inflation forecast for this financial year at 6.7%. And it will remain above the tolerance band of 2.-6% for three quarters this fiscal, RBI still expects the economy to grow at 7.2%.SDF and MSF to grow by 4.65% and 5.15% respectively Granted, the RBI is expected to step up its effort to infuse liquidity, strengthen its fight against inflation and roll back monetary conditions. A hike in the repo rate is bound to raise the cost of credit for banks, directly. The impact will be on retail loans.