Reserve Bank of India (RBI) has not made any changes in its recently released monetary policy repo rate and reverse repo rate. Repo rate has been retained at 4 per cent and reverse repo rate at 3.35 percent. With no increase in policy rates, it is clear that there is little hope of increasing interest rates on loans. In such a situation, the interest rates of the car loan will remain at the lower level. The country’s largest bank SBI is currently offering car loans at an initial 7.20 percent in the festive offer. Let us see if you are taking a car loan of 10 lakhs for 5 years, then what will be your EMI (Equated Monthly Installment).
Loans will remain cheap due to no increase in rates!
Due to non-change in interest rates by the Reserve Bank, the loan rates i.e. lending rates may remain at the lower level for the time being. That is, taking a car loan or home loan is not getting expensive for you right now. The repo rate has a direct effect on the interest rates of the home loan. Repo rate is the interest rate at which commercial banks take loans from RBI. The increase in the repo rate means that when it is costly for banks to take loans, they will also make it expensive for the customers. In such a situation, the loan is not expected to be expensive at the moment. At the same time, reverse repo rate, is the rate at which banks get interest on their deposits with RBI.
From October 2019, the Reserve Bank has made it mandatory for banks to link floating rate personal loans, auto loans and home loans etc. to the repo rate. Most of the banks are offering auto loans, home loans at Repo Linked Lending Rate (RLLR). It is also called external benchmark rate (EBR). The impact of any change in the repo rate in RLLR loans to customers is immediately visible as compared to the Marginal Cost of Funds (MCLR) linked loans. MCLR was started from April 2016. MCLR is an internal benchmark. Actually, this is the interest rate of a bank, below which it does not give loan to anyone. It is based on the bank’s own cost of funds.
10 lakh car loan EMI
The initial interest rate on SBI auto loan interest rate (fixed rate) is 7.20 percent. On the other hand, if you take a car loan for 5 years based on credit score, then the initial interest rate will be 7.25% (0.25% + 1 year MCLR). This will be the floating rate. Now let us see the calculation of EMI.
SBI Car Loan (Fixed Rate)
Loan Amount: Rs 10 lakh
Loan Tenure: 5 Years
Rate of Interest: 7.20% p.a. (Fixed Rate)
EMI: Rs 19,896
Total Tenure Interest: Rs 1,93,742
Total Payment: Rs 11,93,742
SBI Car Loan (CIC Score Based)
Loan Amount: Rs 10 lakh
Loan Tenure: 5 Years
Rate of Interest: 7.25% p.a. (Fixed Rate)
EMI: Rs 19,919
Total Tenure Interest: Rs 1,95,162
Total Payment: Rs 11,95,162
Why should you check EMI?
Before taking the loan, how much installment will have to be paid every month, that is, how much your EMI will come, it should be calculated first. With this you will be able to know how much loan you can take. That is, what is your loan taking capacity. In such a situation, if you are going to take a car loan, then you will be able to plan it in advance. Also, by calculating the EMI beforehand, you can know the total loan amount, tenure and total repayment. You can plan for loan repayment or prepayment.
(Note: SBI car loan EMI here is at the bank’s initial interest rate. This detail is taken from the bank’s official website. This is a calculation. Interest rates may vary depending on your credit score, income, age and other criteria.)