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The Reserve Bank has finally decided to cut the repo rate by 0.25 percent after quite a while. This means that interest rates on retail loans, like home, auto, and personal loans, are also going down. Following this move, many banks have started lowering their loan interest rates. However, if your bank hasn’t made any changes yet, there are still ways to lower your EMI.
These days, most bank loan interest rates are tied to external benchmarks, such as the RBI’s repo rate. So, when the repo rate drops, banks usually follow suit and lower their rates too. This is why retail loans become more affordable, leading to a decrease in your EMI.
That said, if some banks haven’t adjusted their rates, customers can still explore options like switching their loan or doing a balance transfer to get a better deal.
What’s a loan balance transfer?
If your current bank is charging a high interest rate on your loan, you can search for a bank that offers lower rates. By transferring the remaining balance of your loan to a new bank, you could save a significant amount of money. This process is known as a loan balance transfer, and many banks now offer this service. With a balance transfer, the new bank provides a lower interest rate, which can help reduce your EMI.
What’s the advantage of this?
When you transfer your loan balance, the new bank usually offers lower interest rates, which can help cut down your EMI. For example, if you have a home loan of Rs 30 lakh at 9.50 percent interest and switch to a bank that offers 8.50 percent, you’ll see a 1 percent drop in the interest rate. If your loan term is 20 years, you were originally paying Rs 27,964 as EMI, leading to a total interest payment of Rs 37,11,345.
After the transfer, with the new interest rate of 8.5 percent, your EMI drops to Rs 26,035. This means you’ll save around 2 thousand rupees each month, which adds up to about 24 thousand rupees a year. Plus, your total interest payment will only be Rs 32,48,327, saving you roughly Rs 4.5 lakh in the long run.