Are you arranging funds to pay in advance for your rented flat? Or facing a medical emergency exceeding the coverage amount fixed in the insurance plan? For such emergencies, a Personal Loan seems to be the course of action as it offers various advantages not available in other loan types. A Personal Loan is an unsecured and collateral-free loan that helps you get quick funding in your time of need.
Some key elements of Personal Loans are speedy approvals, collateral-free applications, immediate disbursals after approval, attractive interest rates, no restrictions on the purpose of use, etc.
But, are Personal Loan interest rates in India constant or fluctuate regularly? The simple answer is Personal Loan interest rates are subject to continuous fluctuations based on market situations.
Generally, Personal Loan interest rates in India vary between 10% to 29% based on how the applicant scores in the lender’s eligibility requirements. However, as the COVID-19 pandemic sent the economy towards a downward spiral, interest rates have dropped as low as 8%. Let’s discuss the reasons behind this drastic drop never seen before.
RBI Repo Rate Cuts
In response to India’s prevailing financial crisis, RBI had decided to cut down the repo rate by 40 basis points; hence it now stands at 4%. A repo rate is an interest rate at which the Reserve Bank of India “lends” funds to numerous financial institutions. Therefore, any repo cut in the rate reduces the costs of borrowing money for financial institutes from the RBI. Ultimately, this reduces Personal Loan interest rates in India for individual borrowers on unsecured loans like Personal Loans.
However, the repo rate cut benefits only apply to new Personal Loans secured and those availed at a floating interest rate. For Personal Loans borrowed at a fixed interest rate, the Repo cuts’ effect remains minimal to zero. But since the reduction in interest rates, credit has become more accessible.
Revival in Demand
Cuts in the Personal Loan interest rates in India is a way to revive the demand for products related to personal finance. A reduced Repo rate also means lowering the interest rates of various loans, especially Personal Loans. Therefore, the CRR or Cash Reserve Ratio, a portion of the amount financial institutes deposit with RBI, is also reduced; hence lenders can offer credit more readily and boost the liquidity in the system.
As most financial institutions have reduced Personal Loan interest rates in India, salaried employees and other loan seekers can breathe a sigh of relief and apply for personal loans more confidently. But, as always, do thorough research before applying for Personal Loans in top lending institutions that offer lower interest rates, flexible repayment terms, and higher loan amounts at once.