Now that the Reserve Bank has kept the rates unchanged, it is expected that banks will not increase their interest rates under any circumstances. In the current situation, we are telling you how the existing borrowers and those who are going to take loans in the future can get the benefit of it.
Interest rate is the most important factor
The interest rate is the most important factor that decides how much interest you pay for the loan. Home loan is a loan that has to be repaid for many years. So even a slight change in the interest rate means a lot to such customers.
For new borrowers
Most of the home loans are given on a floating rate basis. Floating means rate changes from time to time. With effect from October 1, 2019, RBI made it mandatory for all floating rate retail loans from banks to be linked to an external benchmark such as the repo rate. Most of the banks have used the repo rate as the benchmark for their loans. The repo rate has been at the lowest level in the last two decades and the borrowers have been benefiting from it.
With no hike in the repo rate, new customers who are planning to buy a home in the near future will get more time to process their home purchases and can still avail loans at lower rates.
Review and act time to old customers
No change in the repo rate means that existing home loan borrowers will continue to pay their installments at the same interest rate. However, if your loan is more than 5 years old, it would be prudent for you to check the interest rate regime (ie BPLR, Base Rate, MCLR or External Benchmark Rate (EBR) under which your loan is sanctioned.
Know if you are paying more interest
If you haven’t shifted your loan to an external benchmark linked loan, there are high chances that you may end up paying a higher interest rate on the new external benchmark linked home loan. If you are paying a higher rate of interest, you can ask your existing bank to switch your loan to an EBR linked loan. For this you may have to pay a nominal switching fee.
If the bank is not providing the facility then go to another bank
However, if your bank is not offering this facility or is charging even higher rates on EBR linked home loans, you can consider switching your loan to another bank. Being a floating rate loan, there is no penalty for switching. This means that you only have to worry about the processing fee and other charges of the new bank.
If you see benefit from this then you can take this step. Experts suggest that customers should consider balance transfer when the interest rate reduction is 0.5% or more.
auto loan customers
The maximum tenure of an auto loan is between 5 years to 7 years. It depends on whether you are planning to take a new loan or have taken a loan. You can properly use this pause in the repo rate to your advantage.
new auto loan customers
Most of the car loans in India are still financed on the basis of fixed interest rate. That is, whatever interest rate you get at the time of loan will remain the same for the entire tenure of the loan. Hence, the matter becomes even more important when one takes a loan for a car. So, if you take a loan during a low interest rate period, you can still take advantage of lower installment payments during the tenure of the loan even if the interest rate is hiked by the bank.
lowest interest rate time
For example, currently, you can take a tax loan at the lowest rate of 7.75% to 7.95% per annum. So if you are still making up your mind about which car to buy, RBI’s decision on interest rates gives you some more time to take a final call. Because banks are not going to increase their interest rates for the time being.
Existing Customers of Auto Loans
If you took a loan 2 years back and today the lowest loan rates are available, then this is your chance to switch your loan to another bank. But before doing so, be sure to know about the foreclosure charges as well. It is generally taken on fixed rate loans. If the foreclosure charge is low and the benefit of getting a lower rate from any other bank is high, then you must think about it.
New customers must find new avenues
If you were planning to take a new loan, you would have more time to do so at the current lower rate. Because banks are unlikely to increase rates in the near term. Before choosing a bank, make sure you have a good credit score so that you can check the best rate based on your credit score.
save on cost
There is not much you can do if you have taken a personal loan as personal loans are usually given in the form of a term loan with a fixed rate. However, if you are paying a very high rate of interest or above 16%, it is a good idea to check the rates of other banks to see if their rates are even lower.
Personal loans are for short tenure
Personal loans are usually for a short tenure or say, often for 3-5 years. Hence, when you switch your repayment to it in the first half itself, it can save a lot. This is because most of the interest is charged on your installments in the first half of your repayment time, so any kind of switching will result in a dip in interest rates or interest rates.
