The Reserve Bank of India (RBI) increased the benchmark lending rate or repo rate by 25 basis points to 6.50 % on February 8th 2023 to strengthen the fight against inflation. The repo rate is the rate at which the central bank lends money to commercial banks. This decision to hike the repo rate will lead to an increase in the EMIs on home loans and other borrowings.
RBI Repo Rate Hikes Over The Last 2 Years
Post the latest increase by the RBI, the benchmark lending rate has now hit a two-year high. Banks and lending institutions have already raised interest rates on all kinds of loans after the RBI on May 4, 2022 increased the repo rate.
After the rate hike on 8th February, the stage is set for lenders to follow suit as the cost of funds is bound to rise.
|
Date |
RBI Repo Rate |
|
8th February 2023 |
6.50% |
|
7th December 2022 |
6.25% |
|
0 September, 2022 |
5.90% |
|
5 August 2022 |
5.40% |
|
8 June 2022 |
4.90% |
|
4, May 2022 |
4.40% |
|
9, October,2020 |
4% |
Let us see how the hike in rate impacts the EMIs on Various Loans
Say a person borrows Rs. 2 Lakhs at 13% p.a. for a tenure of 3 years, the EMI is Rs. 6739. If the interest rate is increased to 15%, the EMI will be 6933. The EMI would thus go up by Rs. 194.
Car and Bike Loan
An individual borrows Rs. 7 Lakhs at an interest rate of 9% for a tenure of 5 years. Then the EMI will be Rs. 14,531. If the interest rate increases to 10%, then the EMI will be 14,873. So, the new EMI will be Rs. 342 more.
If you want to keep your EMI unchanged, you can extend your loan tenure. But, in that case, your interest payable amount over the years increases. Other factors like the borrower’s age, income, etc. play an important part while extending the loan tenure.
|
% |
Loan Duration in Years |
EMI |
Interest Payable |
|
|
7,00000 |
9 |
5 |
14,531 |
Rs. 1,71,851 |
|
7,00000 |
10 |
5 |
14,873 |
Rs. 1,92,376 |
Suppose you have taken a loan on your home for Rs. 50 Lakhs at 9.25% p.a. The period is 10 years, and the interest is hiked to 9.50%. Then, your EMI will go up from 64, 016 to 64699, by Rs. 683.
|
Home Loan |
% |
Tenure in years |
EMI |
Interest Payable |
|
50,00000 |
9.25 |
10 |
64,016 |
Rs. 26,81,963 |
|
50,00000 |
9.50 |
10 |
64,699 |
Rs. 27,63,853 |
Conclusion
The RBI has increased the repo rate 5 times last year to contain inflation mainly due to external factors. The global supply chain disruption following the Russia-Ukraine war outbreak is a major factor.