Recently, we saw a sharp rise in Indian stock market. The sensex rose sharply and so does many companies. It was an instant move that triggered due to cut in the repo rate by Reserve Bank of India. Any changes in the repo rate significantly affect the market sentiments as such cut positively affect the individual as well as the companies. A repo rate is generally the "Rate of Interest" At which the reserve bank issues loan to different banks.
RBI has cut the repo rate from 6% to 5.5%.. The repo rate, the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks, significantly impacts loan rates and EMIs, particularly for floating-rate loans. A rise in the repo rate generally leads to higher borrowing costs for banks, which they may then pass on to customers by increasing interest rates on loans like home loans, car loans, and personal loans. Conversely, a decrease in the repo rate can result in lower interest rates on loans, making them more affordable for borrowers. This reduction will increase saving of the individual's by reducing the interest. Here is a short calculation to show the reduction will affect an individual with IMR 30L home loans.
Let’s say your loan is for 20 years:
- At 8.5% interest: EMI = INR 26,035
- At 8.0% interest: EMI = INR 25,094
- You save 941/month
- That’s 11,292/year
- Over the full loan: Save 1.5L+ INR
But here’s the catch: This benefit doesn’t apply automatically any individual unless and until he fulfill following criteria :
- The loan account must be repo rate-linked
- If it is not linked, then ask the concern3d bank to link it.
- If they refuse to do so, transfer the loan to a bank that offers repo-linked rates.
Still facing issues, then the individual can file a complaint at: www.cms.rbi.org.in
Floating-Rate Loans are the loans have interest rates that are linked to the repo rate and change with it. Changes in the repo rate directly affect the interest rate and EMI (Equated Monthly Installment) on these loans.
In good faith - peace!!
