RBI maintains the status quo on rates: what should mortgage borrowers, auto loans, personal loans do now?


To relieve borrowers, the Reserve Bank of India (RBI) has kept the key rates unchanged, i.e. the repo rate and the repo rate. With this decision, there will be no political pressure on the banks to increase the interest rates on different types of loans such as home loans, car loans, personal loans, etc.

While the time to take advantage of holiday loan offers is over, some banks are still offering low interest rates on home loans. Currently, interest rates on home loans start at as low as 6.40%.

The RBI announced its decision to maintain the status quo on rates on December 8, 2021, after its bimonthly monetary policy review meeting. The repo rate and the repo rate are 4% and 3.35% respectively. This is the 9th consecutive monetary policy review meeting in which the RBI has kept its 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 on a new loan (whether it’s a home loan, car loan, or personal loan) can take advantage of the break from RBI.

What should mortgage borrowers do?

New borrowers: Since October 1, 2019, the RBI has mandated banks to link mortgage interest rates to an external benchmark. Most banks have used the repo rate as a benchmark for their mortgage loans. The interest rates on these mortgage loans will move in tandem with the external benchmark to which they are linked, such as the repo rate.

With the repo rate at the lowest level seen over the past two decades and the RBI continuing to maintain the status quo, mortgage interest rates are expected to continue to be at lower levels and rising prices. rate is not expected to happen anytime soon.

Existing borrowers: Existing borrowers will continue to pay their IMEs at the same interest rate. However, they must verify under which regime their mortgage is currently in progress. Borrowers who took out loans before October 2019 will have their loans tied to a different interest rate regime, namely BPLR, Base Rate, or MCLR.

If your home loan falls under one of these schemes, you are likely to pay a higher interest rate than is currently offered on an external mortgage loan linked to a referral. In such a scenario, you can ask your bank to convert your loan to an external index linked loan by paying an administrative fee. You may also want to consider switching to a new lender if your current lender does not allow you to switch to an externally rated linked loan.

Experts suggest that borrowers should consider transferring the loan balance when the resulting interest rate reduction is 0.5% or more.

Anuj Puri, Chairman of ANAROCK Group, said: “With Omicron casting a shadow of doubt across the world and in India, the RBI has decided to keep the repo rates unchanged at 4% and the repo rate unchanged. reverse repo at 3.35%. This was expected, and is the ninth consecutive time that the RBI has maintained the status quo amid current uncertainties. Unchanged repo rates will help maintain the status quo on the current low interest rate regime for some time to come. This works well for all home loan borrowers as the affordability environment will continue. ”

Also read: Home loan linked to the repo rate: Here are the interest rates offered for home loans linked to the repo rate

Auto loans

Banks typically offer auto loans for a maximum term of 5-7 years. However, keep in mind that auto loan interest rates are usually tied to MCLR. This means that when the car loan is disbursed, the benchmark with which the interest rate is linked is the MCLR. Without a change in the key rates, it is likely that there will be no change in the interest rates offered on auto loans.

New car loan borrowers: Usually, the interest rate on auto loans is fixed for the duration of the tenure. This means that once the interest rate is locked in at the time of disbursement, it will remain the same throughout the period. So, with the lowest repo rate in a decade, if you take out a car loan now, you will enjoy the benefits of lower EMI payments throughout the life of the loan. Currently, SBI offers auto loan rates starting at 7.20% and ICICI Bank auto loan interest rates starting at 7.50%.

Keep in mind that the interest rate on the auto loan taken out for the purchase of a used car is higher than the interest rate charged for the purchase of a new car.

Existing auto loan borrowers: If you took out a car loan before the pandemic, say in 2019, then you might find current interest rates much lower than before. To take advantage of lower interest rates, you may want to consider switching to another lender. However, auto loans usually come with a prepayment / foreclosure fee. Check your loan agreement regarding applicable foreclosure fees. You need to calculate the net benefit of switching to a new lender.

Personal loans

New borrowers: With the RBI maintaining the status quo, banks are unlikely to increase interest rates on personal loans. So, if you are planning to take out a personal loan soon, keep your credit score close at hand. Banks offer lower 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.

Also Read: A 50 Point Increase In Your Credit Score Can Save You So Much On Loan Interest Payment

Also Read: How To Maintain An Optimal Credit Score

Existing borrowers: As with auto loans, the interest rate on personal loans is fixed throughout the term. In addition, the duration of personal loans is even shorter than that of auto loans, usually 3 to 5 years. If the interest rate on your current personal loan is high, you may want to consider switching to another lender after weighing the benefits against the fees you may have to incur. However, do this during the initial loan period as the interest component is higher in the early years and decreases over the life of the loan.

Read also: Personal loan interest rates 2021: Comparison of the best personal loan rates from banks


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