RBI NEW RULES: If you’re thinking of taking out a home loan to buy your own home soon, there’s good news for you. Borrowing from banks could become even cheaper in the future. The RBI has made a major change to the rules governing floating-rate loans. Specifically, the rules related to credit scores have been updated, allowing banks to offer customers lower interest rates without the three-year waiting period. However, this benefit will only be available to those whose credit scores have recently improved.
Whenever a bank sets a loan’s interest rate, it depends on two factors: first, an external benchmark such as the RBI’s repo rate or T-bill yield. Second, the bank’s own spread, which includes credit risk and processing costs. Under the new rules, banks can review the spread more quickly. This means that if your credit score improves, the bank can reduce your interest rate by reducing the spread immediately. Previously, this review was done every three years, but now this restriction has been lifted.
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How will the spread be reduced?
To do this, you’ll need to constantly monitor your credit score. If your score increases during the loan period, you can immediately request a reduction in the interest rate. The bank will review your credit profile and, if appropriate, reduce the spread. This will either reduce your interest rate or shorten the loan term. In either case, you’ll save money.
Why is this change beneficial?
Home loans are typically long-term and involve large amounts, such as 50 to 60 lakh rupees. In such a situation, even a 0.25 percent reduction in the interest rate could save thousands of rupees on your monthly EMI. The better your credit score, the greater the benefit.
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Customers will have to take the initiative themselves
According to the new RBI rules, existing customers will have to personally request the bank to reduce the interest rate. Previously, new customers received the benefit immediately, while existing customers had to wait three years. Now, both will have equal opportunity. As soon as the credit score looks better, existing customers will also be able to immediately ask for a lower interest rate.
