Stories
RBI Rate Hike: Will Your Car And Personal Loans Get Costlier?
- •The Reserve Bank of India raised the repo rate by 25 basis points to 5.50 percent, which could increase borrowing costs for consumers.
- •The impact on existing car and personal loans depends largely on whether the loan has a fixed or floating interest rate.
- •For floating-rate loans, a rate hike can lead to higher EMIs or extended loan tenures depending on the lender's reset mechanism.
- •Fixed-rate loans generally remain unaffected and maintain the same interest rate for the agreed period.
- •New borrowers should compare interest rates, processing fees, and total repayment costs across lenders rather than assuming uniform hikes.
Key Questions Answered
The impact depends on whether the loan has a fixed or floating interest rate. Floating-rate loans may see higher EMIs or longer repayment periods if lenders raise their rates, while fixed-rate loans generally remain unchanged for the agreed period.
No, a 25-basis-point increase in the repo rate does not automatically translate into an identical 25-basis-point rise in your individual loan interest rate. The actual change depends on the lender's policies, the loan type, and the benchmark used.
If an interest rate rises on a floating-rate loan, lenders may increase the EMI, extend the loan tenure, or adjust both depending on the loan terms. The specific outcome depends on the remaining tenure, outstanding principal, and the lender's reset mechanism.
