RBI (Reserve Bank of India) announced that Repo Rate is increased from 6% to 6.25% on 6th June 2018. People who work in financial sector are always worrying about repo rate hike because a solid impact can be seen on loan products. But a question comes out here, how repo rate hike is directly proportional to Loan’s EMI amount. So read further carefully and clear every doubt.
What is repo rate?
You can understand in simple language to repo rate. This is the rate of interest on which Reserve Bank of India (RBI) lends money to commercial banks in India. Due to shortfall of funds many commercial banks borrow money from RBI. Repo rate can be used to control inflation in our country. Increased repo rate creates the situation of disincentive for banks to borrow. Therefore money supply in the economy decreased and it helps to arrest inflation.
How it causes increment in loans EMI?
When repo rate hikes commercial banks have to pay increased interest rate on running loan that borrowed from RBI. In turn commercial banks increase the interest rate of their loan products. Therefore commercial banks re-calculate loans EMI’s and customers have to pay a little extra amount on their existing loan’s EMI. We can see a direct impact on loans EMI in respect with repo rate hike.
How repo rate hikes affects on Personal Loan
Most important thing you should know before worrying about your increased loan’s EMI is that, Repo rate hike would leads to increase in the rate of interest only if the loan has been given on floating interest rate only. If the Personal Loan has been given on fixed interest rate then there is zero impact on your Personal Loan EMI due to change in repo rate.
Prudent step to tackle this situation
Personal loan balance transfer is the best solution to decrease this burden. If your personal loan’s EMI has been increased by your loan partner then you should have to switch the lender which offers lower interest rate. Nowadays Finheal Capital is right choice among personal loan consumers, transfer your personal loan balance and take advantage of lowest interest rates.