The news of hiked repo rate by RBI is in buzz as the same has been increased after almost 4 and half years. On the 6th day of June 2018, RBI has announced the revised repo rate of 6.25% which was previously 6%. This means that the interest rate has been increased by 0.25% or 25 basis points Blog: https://financebuddha.com/blog/worried-about-the-rbis-hiked-repo-rate-here-is-how-you-can-beat-the-interest-rate-hike-burden

1. HERE IS HOW YOU CAN BEAT THE
INTEREST RATE HIKE BURDEN

2. On the 6th day of June 2018, RBI has announced the
revised repo rate of 6.25% which was previously 6%. This
means that the interest rate has been increased by 0.25% or
25 basis points.

3. What Is Repo Rate?
In the simplest way of explaining, the repo rate can be
explained as the rate at which the RBI lends money to
commercial banks. All the commercial banks need to borrow
money from RBI for which they need to pay an interest to the
RBI.

4. Impact of Hiked Repo Rate On Loan EMIs
Whenever the repo rate gets a hike, the banks increase the
MCLR (Marginal Cost of funds based Lending rate). The loans
with a floating interest rate will have to pay more on interest
payment because of increased MCLR i.e. the interest rate.

5. Impact Of Hiked Repo Rate On Existing Home Loan Borrowers
The hiked repo rate or in other words the increased MCLR
will not have an immediate effect on existing home loan
borrower. Existing borrowers will not see any changes in the
EMI amount. The latest home loan interest rate will make a
change in the tenure of the loan instead of the EMI amount.

6. Smart Steps That Can Be Taken To Reduce The Interest Rate
Burden
1) Increase EMI Not Tenure
This means a longer tenure loan will be costlier than a shorter
tenure loan of the same amount. As mentioned above, the repo
rate hike will not have an immediate effect on the EMI amount
but the tenure will be stretched.

7. 2) Part-Payment
The part payment is one of the most effective tools to bring the
cost of borrowing down. It is advised by many financial
experts that instead of investing your surplus money for a low
return, you can better pay off your loan. The savings you make
on interest payable will be more than the returns of your
investments.

8. 3) Switch Lender for A Better Interest Rate
We know that the repo rate has been increased by 25 basis
points but it doesn’t mean that all lenders will also increase
the interest rate by 0.25% only. Some lenders may increase
its MCLR by more than 0.25%. If your lender is also one of
them then you can switch the lender for a better deal.

9. The Bottom Line
The fluctuation in the banking sector is not a new
phenomenon. It has always been there and the same is certain
to be repeated time to time along with inflation.