With easing inflation and stronger economic condition, the RBI, since 2014, started reducing interest rates. Due to this, till date there has been an overall reduction of 175 basis points (adjusting the last hike of 25 basis points). The downtrend in the interest rates positively impacted the borrowing class and financial institutions significantly reduced the interest rates on loans across every category, lowering the overall interest burden, resulting in a faster loan repayment.
To simplify, a reduction in interest rates positively impacts the borrowers whereas, a hike in the same results in higher interest rates where borrowers have to pay comparatively higher interest amount. Let’s understand the concept in detail using an example:
For instance, a home loan borrower has an outstanding principal of Rs. 10 lakhs at an interest rate of 9% with a tenure of 10 years. Now, in favourable circumstances, if the lender reduces the interest rates by say 30 basis points, the effective interest rate on the home loan would reduce to 8.70% resulting in an overall savings of roughly Rs. 1,18,155 throughout the home loan tenure.
On the contrary if Home Loan Interest Rates were to increase by an equal 30 basis point, the resultant outcome would have an adverse impact on the home loans and with an increased number of EMIs of around 21 months, home loan borrowers would have to pay around Rs. 1,47,964 more in the interest component for the overall loan tenure.
So while we understand that a change in interest rates is directly related to our loans, here are 3 important factors which if considered can help you reduce your interest rates, resulting in a quick repayment term:
Factors That Help Reduce Interest Rates:
CIBIL Score or your credit history is the single most important factor that can determine the interest rate of your borrowings. The higher your CIBIL Score, the lower is your interest rate. A higher CIBIL Score of above 750 (out of 900) signifies you as a responsible borrower with a greater probability of repayment of the debt. And hence, with a good credit history that implies a lower risk, the lender would be willing to offer housing loans or any other loans at a significantly lower interest rate.
You can always negotiate the lending rates with your lender if you have an existing relationship or if you have a good credit history. It is possible that at times if you have a regular source of income and a good relationship history, the financial institution might offer loans at highly competitive rates, saving you a good deal of money.
Home Loan Balance Transfer:
While existing borrowers who have opted for floating interest rates do get the benefit of rate reductions, to acquire new and healthy customers, financial institutions offer fresh loans at an even better rate to capture a greater market share. Eventually, borrowers can make a smart move and compare the interest rates between various financial institutions. A cheaper rate can save you a lot of money which otherwise would go in the payments of interest part. Additionally, a borrower also benefits from other enhanced features such as extending/reducing the tenure which eventually affects the EMI amount in their favor.
With such simple steps, borrowers can get the opportunity of saving a good amount of money and reduce their overall interest burden.
Indiabulls Home Loans, a leading housing finance institution offers Home Loans, Home Loan Balance Transfer and multiple other mortgage loans with easy processing and highly competitive interest rates which starts from as low as 8.70%* p.a. for the housing loans category. Visit the IBHFL Website today to get an attractive quote and fulfill your dreams.