Savings advice: Loan will now be cheaper at floating rate instead of fixed, RBI can cut interest rates

New Delhi| Recently, many such cases have come to light when the debate has gained momentum on the open platform that loan rates are very high. Union Minister Piyush Goyal and even Finance Minister Nirmala Sitharaman have openly told the Reserve Bank of India (RBI) and banks that high loan interest rates are hindering growth. Despite this, till now RBI has maintained the repo rate as it has been for two years. This simply means that the demand for loans has decreased due to high interest rates. Due to this, people are also reducing expenses which is hindering the development of the country. Now it is estimated that RBI may cut rates in the meeting to be held in February, which will make loans cheaper. This may be further reduced once the rate-cutting cycle begins.

Loan interest rates have remained high for two years. If you have taken a loan at a floating rate, your loan may become cheaper in future. As interest rates are cut, there will be a change in your loan installment also. That is, banks will also cut rates in the same proportion as RBI reduces rates.

Better option to take loan at floating rate
Banks’ interest rates are never in a straight line. These are less as well as more. In such a situation, if you have taken a loan at a fixed rate, then when the rates decrease, you do not get the benefit. Therefore, ever take loan at floating rate only. Fixed rate is better if taking for short time but also for long time like home loan or car loan or any personal loan which is for 3-5 years term or more then floating rate can be better option.

To avoid huge installments, the idea is to make as much pre-payment as you can till the first, second and third year of taking the loan. In return, reduce the loan tenure. You will see that just 10-20 per cent of the total debt pre-payments will reduce the loan tenure by 6-7 years. That is, one can get the benefit of 10-12 lakh interest.