Automoblile Desk: After the decision of the Reserve Bank of India (RBI) to increase the repo rate by 0.25 percent, the banking sector and auto loan market of the country seems to be directly affected. After this decision, the repo rate has now increased from 5.25 percent to 5.50 percent. This move by the central bank will have the biggest impact on those customers who have taken car loans on floating interest rates or who are planning to finance the purchase of a new vehicle in the near future.
Banking experts believe that as soon as commercial banks pass the burden of this increased repo rate on to the customers, loan interest rates will rise. Its direct impact will be visible on the installment paid every month i.e. EMI. However, its impact on every person's wallet will not be the same as it depends on the total loan amount, remaining tenure and internal preferences of the concerned bank.
Understand the mathematics of car loan of ₹ 10 lakh
Mathematical calculations make it easy to understand how even small increases in interest rates affect the fiscal budget in the long run. Suppose you have taken a car loan of ₹10 lakh for a tenure of 5 years (60 months). If till now the interest rate on your loan was 9 percent, then your monthly EMI was around ₹ 20,758.
Now if the bank applies the full impact of the 0.25 percent increase in repo rate to your car loan and your interest rate increases to 9.25 percent, then the new EMI will be approximately ₹ 20,875. This means you will have to pay around ₹117 more per month. If seen on annual basis, this additional expenditure comes to approximately ₹ 1,404. However, it is important to note that this is only a standard calculation and the actual figures may vary slightly as per the bank's terms and conditions.
Which customers' pockets will be directly affected?
The most immediate impact of this change will be seen on those customers whose car loan is directly linked to an external benchmark (like repo rate). In such floating rate loans, rate revisions occur very quickly.
On the other hand, this decision will not have any direct impact on the health of customers who have opted for fixed interest rate. In fixed rate loans, the interest rates are fixed at the time of the loan agreement itself, hence the monthly installments do not change due to the decisions of RBI.
Important tips for those taking a new car loan
If you are planning to take a loan to buy a new car during this period, then you can reduce your financial losses by keeping some practical things in mind:
Strength of credit score: Before applying for loan, check your credit score. A CIBIL score of more than 750 gives you a chance to negotiate lower interest rates from banks.
Comparing rates in the market: Don't rely on just one bank or the bank with your existing account. Compare offers from different financial institutions and NBFCs.
Know about additional charges: Don't just look at the interest rate, also gather information beforehand about hidden charges like loan processing fees, pre-payment penalty and documentation charges.
Choosing EMI as per budget: Decide the EMI amount only after properly estimating your monthly income and mandatory household expenses, so that there is no stress regarding repayment in future.