Today RBI has increased repo rate by 0.25 percent. After this, the repo rate has increased from 5.25 percent to 5.50 percent. This decision of the central bank may have an impact on the pockets of people who have taken car loans on floating interest rates. If banks pass on the full increase in the repo rate to customers, the interest rate on the loan may increase and EMIs may also become more expensive.

However, it does not mean that every customer’s EMI will increase by the same amount. The amount of change in your installment depends on many factors like loan amount, current interest rate, remaining term and the bank’s reset policy. Let us give you an example, if you have taken a car loan of Rs 10 lakh, what will be your monthly EMI.

10 Lakhs Car Loan Impact?

Suppose you have taken a car loan of Rs 10 lakh for 5 years ie 60 months. The interest rate on this loan is 9 percent. Hence your monthly EMI comes to around Rs 20,758.

Now, if the bank increases the interest rate on your car loan from 9 percent to 9.25 percent after increasing the repo rate, the EMI can go up to around Rs 20,875. That means in this example your monthly installment would be approximately Rs. 117 will increase. If you look at it throughout the year, you will need to spend approximately Rs. 1,404 more to be paid. Keep in mind that this is just an example. The actual EMI may vary depending on the interest rate of your bank and the remaining terms of the loan.

Which customers will be most affected?

The most direct impact of repo rate changes can be seen on floating rate loans. Especially on such loans, whose interest rate is linked to an external benchmark. In this, the impact of changes in the repo rate can be seen relatively quickly.

On the other hand, if your loan is linked to a different benchmark, interest rate changes may not be immediate. How the bank sets the interest rate and when the loan resets also play an important role.

What will happen to fixed rate loans?

If you have taken a loan with a fixed interest rate, an increase in the repo rate usually does not directly affect your EMI. Your interest rate is already fixed, so even after RBI’s decision, there is no need to change the installment immediately.

So, just by increasing the repo rate, it is not possible to determine how much each customer’s EMI will increase. It is important to see how much the bank has changed the interest rate, what kind of benchmark your loan is linked to and when the next reset will happen.

Keep these things in mind before taking a loan

Look at the credit score first

Check your credit score before applying for a loan. Having a good score can increase your chances of getting a better interest rate.

Talk to the bank about interest rates

Do not accept the interest rate offered by the bank without question. Lower rates can be negotiated based on a good credit profile.

Collect offers from different banks

No need to take loan only from your old bank. Choose a better option by comparing interest rates, EMIs and terms of other banks and lenders.

Understand additional charges in advance

Don’t make a decision based on the low interest rate of the loan. Get information in advance about processing fees, pre-payment charges, late payment fees and other possible charges.

Check the benefits of your job or company

If your company has a tie-up with any bank or has a special loan offer for its employees, you can take advantage of it.

Decide the EMI according to your budget

Before taking a loan, check how much EMI you can comfortably pay every month. Don’t just decide based on getting a bigger loan amount, but keep your monthly income and other expenses in mind.

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