Remedies for loan interest rate hike

The flow of bad news just does not seem to stop for the hapless Indian consumer. On the back of runaway inflation the consumer now has to cope with increased EMIs on his home loan as well. RBI has rather significantly increased by 0.50% both the CRR rate (see box for what is CRR) and the Repo rate. This clearly is a signal that banks will have to increase interest rates and the banks have already starting responding. Whilst this may be good news for depositors it will mean that the borrowing consumers will have to pay a higher interest rate.

Both SBI and Union bank have already raised their lending rates by 0.50% and other banks and lenders are likely to follow suit soon.

What can an existing home loan consumer do to cope with this situation :

1) Firstly, he must keep an hawk's eye on the interest rate that his lender is charging to ensure that they are not charging him a higher rate than what they are giving to their new customers. This happens frequently and if the consumer finds this out, he should threaten to switch his loan to another lender if his existing lender refuses to give the same rate to him. Rates can be checked at a variety of sources including the rates comparator on www.apnaloan.com. Off course, this option is available only to those consumers who have maintained an excellent track record of payment on their loans.

2) If the consumer has any surplus cash (after keeping a reserve for
contingencies) he can consider repayment of a portion of his loan so as to keep the EMI burden at an affordable level. In consultation with his personal financial advisor he can also consider liquidating some fixed income investments (such as fixed deposits)to repay a portion of his home loan.

3) If none of these options are available and he can afford to pay higher EMIs from his monthly budget he should choose that option.

4) Lastly should be the option of requesting the bank to increase the loan tenure.

None of the above options are easy but then these are not easy times.