The Reserve Bank of India in its credit policy on Tuesday announced a 25 basis points reduction in the repo rate to 6.25 per cent, bringing the policy rate to a 6-year low. This comes as a clear signal to lenders to lower lending rates to borrowers which would lead to greater offtake and provide a boost to the economy.
But how much would the repo rate reduction mean to you in actual terms? How would it impact your loan rates, especially retail loans such as home and care loans, and by how much?
Naveen Kukreja, CEO & Co-founder, Paisabazaar.com said: “RBI’s decision to cut repo rate by 25 basis points is directed towards reviving customer sentiment. Hopefully, this will positively influence the borrowing environment. Home and car loan borrowers are likely to benefit, given that banks have been asked to pass on the benefits to customers in the form of lower EMIs and reduced interest payout. I expect banks to pass the cut between 10 bps to 20 bps to borrowers.”
FeMoney took the help of Paisbazaar.com to bring to you an idea of how much you could save after the repo rate cut by the central bank. In fact, over the long tenure of a home loan, which is often spread over some decades, the saving could be substantial. Here are the calculations.
Assuming that banks cut their lending rates by an identical 25 basis points here is what the impact on your home and car loan would be. For a Rs 30 lakh home loan for 20-year tenure with a current rate of 9.35 per cent, the present Equated Monthly Instalments (EMI) would work out to Rs 27,671. However, at 9.10 per cent (25 basis points lower) the new EMI rate3 would be Rs 27,185. This would translate into a saving of Rs 486 per month and Rs 5,832 annually. Over the entire loan tenure the saving works out to Rs 1,16,240.
For a Rs 1 crore loan over 20 years, at the same terms as above, the current EMI would be Rs 92,236 whereas with a 25 basis points interest rate reduction the EMI would come down to Rs 90,617. This results in a monthly saving of Rs 1,617 and an annual saving of Rs 19,404. Over the 20 years you would save Rs 3,88,080.