Though the time to avail the festive season loan offer is over, some banks are still offering low interest rates on home loans. Currently, the interest rates on home loans are starting from as low as 6.40%.
RBI announced its decision to maintain status quo on rates on December 8, 2021 after its bi-monthly monetary policy review meeting. The repo rate and reverse repo rate are 4% and 3.35% respectively. This is the ninth consecutive monetary policy review meeting where the RBI has kept key rates unchanged. The current repo rate of 4% is the lowest rate since April 2001.
Here’s a look at how existing borrowers and those looking to take a fresh loan (be it home loan, car loan or personal loan) can take advantage of the RBI’s moratorium.
What do you want home loan borrowers Doing?
New borrowers: With effect from 1 October 2019, RBI has mandated banks to link home loan interest rates to external benchmarks. Most of the banks have used the repo rate as the benchmark for their home loans. The interest rates of these home loans will be linked to an external benchmark like the repo rate.
With the repo rate at the lowest level in the last two decades and the status quo being maintained by the RBI, home loan interest rates are likely to remain low, and the rate hike is not expected anytime soon.
Existing Borrower: Existing borrowers will continue to pay their EMIs at the same interest rate. However, they need to check the arrangement under which their home loan is currently running. Borrowers who have taken loans before October 2019, their loans will be linked to a different interest rate regime i.e. BPLR, Base Rate or MCLR.
If your home loan is covered under any of these arrangements, chances are you are paying a higher rate of interest as compared to the external benchmark linked home loan. In such a scenario, you can ask your bank to switch your loan to an external benchmark linked loan by paying an administrative fee. If your current lender is not allowing you to switch to an external benchmark linked loan, you can also consider switching to a new lender.
Experts suggest that borrowers should consider loan balance transfers when the interest rate reduction is 0.5% or more.
Anuj Puri, President – ANAROCK Group says, “With Omicron throwing a shadow of doubt across the world and in India, RBI has decided to keep the repo rates unchanged at 4% and the reverse repo rate at 3.35%. This expected This is the ninth time in a row that the RBI maintained status quo amidst the prevailing uncertainties. The unchanged repo rates will help maintain the status quo on the current low interest rate regime for some more time. This augurs well for all home loan borrowers. Works because the environment of affordability will continue.”
Read also:Repo Rate Linked Home Loan: Here are the interest rates offered for repo rate linked home loans
car loan
Banks usually offer auto loans for a maximum tenure of between 5 years to 7 years. However, keep in mind that usually the interest rate on auto loans is linked to the MCLR. This means that at the time of disbursement of the car loan, the benchmark to which the interest rate is linked is the MCLR. With no change in policy rates, it is likely that there will be no change in the interest rates offered on auto loans.
New car loan borrowers: Generally, the interest rate on a car loan is fixed throughout the tenure. This means that once the interest rate is locked in at the time of disbursement, it will remain the same throughout the tenure. Thus, with the lowest repo rate in the decade, if you take a car loan now, you will get the benefit of lower EMI payments during the loan tenure. Currently, SBI is offering car loan rates starting from 7.20% and ICICI Bank car loan interest rates starting from 7.50%.
Keep in mind that the interest rate on a car loan taken to buy a used car is higher than the interest rate on buying a new car.
Existing Car Loan Borrowers: If you had taken a car loan in 2019 before the pandemic, you may find the current interest rates much lower than before. To take advantage of lower interest rates, you may consider switching to a different lender. However, auto loans usually come with prepayment/foreclosure charges. Check your loan agreement for applicable foreclosure charges. You need to calculate the net profit of switching to the new lender.
personal loan
New borrowers: With the RBI maintaining the status quo, it is unlikely that banks will hike personal loan interest rates. So, if you are planning to take a personal loan soon, keep your credit score handy. Banks offer low interest rates to borrowers with excellent credit history. The higher your credit score, the better your chances of getting a loan and that too at a good interest rate.
Read also:A 50 point increase in your credit score can save you so much on loan interest payments
Read also:How to Maintain Optimal Credit Score
Existing Borrower: Like a car loan, the interest rate on a personal loan is fixed throughout the tenure. Also, the tenure of a personal loan is even shorter than that of an auto loan, usually 3-5 years. If the interest rate on your ongoing personal loan is high, you may consider moving to another lender after evaluating the benefits as compared to what you may have to bear. However, do it in the initial tenure of the loan as the interest component is high in the initial years and it gets reduced during the tenure.
Read also: Personal Loan Interest Rates 2021: Comparison of Top Bank Personal Loan Rates