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Thursday, November 30, 2023

Middle Class To Be Hit Most As Home, Car Loans Get Costlier Ahead of Diwali. Why You Should Expect To Pay More

RBI Monetary Policy: At a time when Inflation has taken a toll on households of middle-class families, the Reserve Bank of India (RBI) mounted their trouble by increasing the repo rate by 50 basis points to 5.90 per cent. Rising prices of everything from cars to cooking oils are modifying how middle-class families are consuming goods. Recently, a survey conducted by the Bank of Baroda revealed that there has been a considerable drop in the production of everyday items like soap, toothbrush, biscuits etc as middle-class families are opting for smaller packs and postponing purchases of products in the wake of inflation.Also Read – RBI’s Next Repo Rate Hike Expected To Be 35 Bps To 6.25%

Meanwhile, with the hike in repo rate both existing and new loan borrowers will have to pay higher equated monthly instalments (EMIs) for their home loans as the cost of borrowing will go up for banks.  Besides, Car loans too will also go up, however, those who have taken a loan at a fixed interest rate will be spared. Also Read – Maha Ashtami 2022: Are Banks Open Today?

What is Repo Rate? 

The repo rate is the interest rate at which the RBI lends short-term funds to banks. The RBI’s decision to hike repo rate again will make all the banks increase interest rates on loans. Hence, home loans, and auto loans are expected to become costlier. Also Read – Bad News For ICICI Home Loan Customers, Bank Hikes Interest Rates

How Repo Rate Will Affect Your EMIs?

For the unversed, the banks will have to fix interest rates for different types of customers on the basis of the MCLR (marginal cost of funds based lending rate). Taking into consideration the repo rate and other lending rates, banks revise the MCLR on a monthly basis.

Five benchmark rates are required for different tenures which range from 1 day to 1 year. The banks are free to set rates for tenures exceeding 1 year. Banks cannot lend below the MCLR but there are a few exceptions. For loans against deposits and loans to employees of the respective bank, banks can lend below the MCLR.

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