It is very important to plan and research about the interest rates before taking any kind of a loan. There are so many factors that will help you in finalizing the bank of your choice but you will mostly take the final decision only after considering the interest rates.
This is a normal practice as everyone wants to pay lesser interest and save as much as possible. But one factor which is not in your hands is the interest rate hike. Yes, you might have signed the application for a lesser rate of interest but once RBI increases the interest rates, Banks follow suit and increase the rates on different types of loans. This may or may not affect you and it depends on the tenure of your loan. If the loan is for a shorter tenure, you won’t be affected much with the interest hike. But if the loan is for a longer tenure, you might be affected with the interest hike.
For instance, if you had a personal loan for 3-5 years, then you will not be affected with the hike in interest rates. But if you have a home loan for 15-20 years, then a slight change in the interest rates will impact your savings. In order to be ready for this, we have mentioned few steps which will help you in preparing for such interest hikes!
Plan for slight interest hikes – Just because you got a loan at 10.00%, don’t be lazy in planning your budget in the event of a rate hike. You can analyze how much more you will have to save from your income by using a loan calculator and checking the impact of a 0.25%, 0.50%, 0.75% increase hike on interest rates. This can help you be ready in advance and you won’t be in a state of panic.
Plan to increase your savings and investments – Another good option for you is when you can increase your savings. You can opt for different savings options like a recurring deposit, fixed deposit, SIP in mutual funds, PPF etc. Keeping a separate fund will help you in case the interest rates are hiked in the future.
Balance Transfer – Why should you repay your loan at a higher interest rate when there are many Banks/NBFCs in the market that have better deals? After a few years, in case you notice that there are Banks and NBFCs that are offering a balance transfer option at a lower rate of interest, then you can consider shifting your loan to the new Bank. Before you could take this decision, please analyze if by transferring the loan, you will save money or no.
Hence, instead of being worried about interest rate hikes, you can plan ahead in time and be ready for such an event.