The Reserve Bank of India Governor Shaktikanta Das hiked the repo rate by 25 basis points to 6.50% on February 8th. Banks are expected to increase interest rates on retail loans, therefore it is crucial for the general public to know about how RBI repo rate hike decisions will impact individuals’ monthly EMIs.
What is repo rate?
The rate at which the central bank loans money to commercial banks is known as the repo rate. The ruling opens the door for banks in the public and private sectors, housing finance organisations, and other lending institutions to raise interest rates on all types of loans.
Existing and new borrowers would soon have to pay higher EMIs for their loans as banks and lending institutions raise interest rates in tandem.
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What will be the impact on personal loans?
It is true that an increase in bank interest rates will have a direct impact on both bank depositors and new loan borrowers. Banks raise the interest rate on their consumer loans following an increase in the repo rate.
Since last year, loan interest rates have increased by almost 2%, making it impossible for borrowers to calculate their EMIs. Borrowers of home and vehicle loans are still able to maintain their current EMIs despite the increase in interest rates. But they will end up making EMI payments for a longer period of time.
(Also Read: RBI repo rate hike: Borrowers to pay Rs 758 more EMI, check calculations)
It should be remembered that as your loan period is extended, your annual interest payment will grow. The age and repayment capacity of the borrower are important additional criteria in tenure extension.
For instance, in the event that the interest rate is raised to 15%, the EMI for a person who took out a personal loan for Rs. 5 lakh at a rate of 13% per year for a term of 5 years would increase by Rs. 518, from Rs. 11,377 to Rs. 11,895.
