Home Loan: If you hold a home loan or a car loan, this news will be very welcome. The Reserve Bank of India (RBI) has made a decision that benefits customers. In the monetary policy review on June 5, no changes were made to the repo rate; effectively, the RBI has kept the repo rate unchanged at 5.25 per cent.
This is good news for customers who have already taken out home or car loans. Rising tensions in the Middle East have driven up crude oil prices, leading to an increase in the rates of petrol, diesel, and gas in India. This raised concerns about potential inflation. While there was speculation that the RBI might raise the repo rate to curb inflation, that did not happen.
Will loans become more expensive?
You should be aware that if interest rates rise in the future, customers with home or car loans would need to pay higher EMIs, or their loan tenure would be extended. However, for now, they can breathe a sigh of relief. Experts suggest that those planning to take out a home or car loan should do so sooner rather than later.
The reason is that home and car loans will become more expensive if the repo rate rises in the future. However, it is important to note that banks currently prefer offering loans at floating interest rates.
EMIs affected by repo rate changes
EMIs decrease when the repo rate is lowered. Conversely, if the Reserve Bank of India raises the repo rate, loan EMIs increase. A global economic crisis has persisted over the past few months.
In this context, a reduction in the repo rate is unlikely, while an increase is more probable. This implies a higher likelihood of home and car loans becoming more expensive in the future. Until the repo rate rises, customers can continue paying their home and car loan EMIs at current rates.
How to prepay the loan
It is worth noting that the central bank might raise the repo rate during the August monetary policy review. Therefore, if home loan and car loan customers have surplus funds, they can prepay a portion of their loans. This allows them to either reduce their EMI or request the bank to shorten the loan tenure.
Doing so will mitigate the impact of any future repo rate hikes. Additionally, rising petrol and gas prices have affected household budgets, and fuel prices could rise further in the near future.
