There is barely any justification required for taking up a personal loan. In fact, those borrowing to meet their exorbitant routine expenses, are more partial to personal loans because of the easy accessibly and also as they do not involve any collateral whatsoever. Therefore, eligibility for personal loans and the amount to be sanctioned is evaluated on the basis of individual income and creditworthiness.
Opting for a personal loan can definitely be the solution to your financial straits. One must ensure strict adherence to the repayment policy, lest it should play the spoiler and be a blot on your credit history, ruining your chances in the market.
Loans and Repo Rates
The reduction of the repo rate may not benefit the borrowers immediately. The banks will have to reduce the Base Lending Rate and eventually the EMI decreases.
Existing Borrowers: The decision may or may not affect the existing EMIs of loans. When a loan has been offered on a floating interest basis, the rate of interest will be reduced,and the EMIs will go down. When a personal loan has been offered on a fixed interest basis, the interest rate is not affected in the change of repo rate.
If you have a personal loan of 10 lakhs for five years at the interest rate of 11.25%, your current EMI would be 21,867. But if the bank decides to lower its interest rate by 25 points to pass on the benefits of a lower interest rate, at 11.00%, the EMI will come down to 21,742.
Some banks may reduce the tenure of the loan instead of decreasing the EMI. This means the monthly instalment stays the same, but the rate cut can make a substantial difference if the remaining loan tenure is very long.
New Loan borrowers: Repo rate cuts make personal loans more affordable. For those individuals who pass the personal loan eligibility criteria, can apply for loans at the new cheaper rate of interest and take the benefit of the change, when banks implement the changes on interest rates.
The Impact of Cutting Down Repo Rates
The interest rates banks offer is what entices customers to take loans. The lesser the interest rates, the more people tend to borrow the money from banks.
When banks have to pay lesser interest to RBI, they will reduce the interest rates they offer to the customers by slashing the MCLR- the minimum interest rate a bank charges on loan. When the cost of credit is reduced, the interest on loans is alternately reducedtoo. This leads to a reduction in Cash Reserve Ratio (CRR) which increases the availability of credit for customers.
When CRR reduces, there are more funds to liquidate. There is an increased money supply in the system; the funds are being used for investment, education, infrastructure etc. This raises economic activity in the country. The GDP of the country is set to grow under such a circumstance. The GDP growth strengthens the country’s currency and leads to arresting inflation. It’s a win-win for borrowers, bank and economy if properly channelled.