Loans in Times of Rising Interest Rates – The New Indian Express

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Express press service

The value of your money is a function of inflation in the economy. This drives interest rates or the cost of money. If the prices of goods and services rise rapidly, interest rates will rise in parallel.

If you’re a regular reader of personal finance, you’ll be familiar with the monthly Consumer Price Inflation Index or CPI update. However, if you’re not into finance, you might want to look at the money you’ve spent in the last month and compare it to previous months. Inflation eats away at the value of your money. For the same amount of goods, you pay more every year.

While inflation remains stubbornly high, interest rates should remain firm in parallel. Although India is becoming the fastest growing major economy in the world, persistently high inflation and interest rates would keep this growth in check. There are no signs of lower inflation or higher interest rates.
You will need to assess your loan portfolio if interest rates remain high. If you have opted for a variable rate loan, your borrowings are impacted by changes in interest rates. You will receive regular communications from your lender about changes in interest rates. Your monthly equivalent or EMI payments may increase, or the lender may send you a note suggesting an increase in your term or number of balance payments.

It’s time for you to review your loan portfolio. The first check should be to determine the interest rate trend. A leading indicator is the yield on 10-year government bonds. It is usually the benchmark for interest rates set by the Reserve Bank of India for banks to borrow money from.

It is easily accessible online and updated daily. If it increases month over month, interest rates will likely remain firm or continue to rise. If it shows a downward trend, it could mean the peak of interest rates and the trend of inflation. The yield on 10-year bonds is influenced by the expected inflation trend in an economy.

You can then estimate the average interest rate you pay on all your loans. These can include your home, car, personal and credit card loans. Personal loans are growing faster than other loans because banks are overflowing with money. They want you to borrow more as interest rates rise. You will regularly receive new loan offers if you have a good credit rating. (Generally 750 and above)

If you have excess cash in the bank and an outstanding credit card, you may want to pay that off first. Next come personal loans. The interest rates on them vary depending on your credit score. You may want to consider prepaying the principal amount in part or in full.

Car loan agreements are usually airtight and you have little leeway to make changes. If you don’t have a credit card or personal loan, you can pay off your auto loan because it’s a short-term loan.

There may be a prepayment penalty on all loans.

If interest rates rise significantly, you may want to consider renewing your variable rate home loan. Competition between banks is intense. Chances are that relatively newer banks will offer you a refinance facility where you do a “balance transfer” to the new bank on your existing home loan. The new bank purchases the loan asset from your old bank. Banks facilitate this for their business needs. The new bank needs new customers, while the old bank may want to strengthen its capital by selling existing assets.

Your home loan is your cheapest financing option. If you don’t have any other loans, you might want to wait before rushing to prepay that loan.

According to most local and global experts, the Indian economy is expected to grow steadily over the next decade. This means that your stock market investments could also generate a steady return. Rushing to prepay the home loan by selling investments or stopping regular SIPs could hurt your finances. Talk to a professional advisor and work out a plan.

Don’t rush to prepay your home loan
According to global experts, India’s economy is expected to grow steadily over the next decade. This means that your stock market investments could also generate a steady return. Rushing to prepay the home loan by selling investments or stopping regular SIPs could hurt your finances.

(The author is editor of www.moneyminute.in)

The value of your money is a function of inflation in the economy. This drives interest rates or the cost of money. If the prices of goods and services rise rapidly, interest rates will rise in parallel. If you’re a regular reader of personal finance, you’ll be familiar with the monthly Consumer Price Inflation Index or CPI update. However, if you’re not into finance, you might want to look at the money you’ve spent in the last month and compare it to previous months. Inflation eats away at the value of your money. For the same amount of goods, you pay more every year. While inflation remains stubbornly high, interest rates should remain firm in parallel. Although India is becoming the fastest growing major economy in the world, persistently high inflation and interest rates would keep this growth in check. There are no signs of lower inflation or higher interest rates. You will need to assess your loan portfolio if interest rates remain high. If you have opted for a variable rate loan, your borrowings are impacted by changes in interest rates. You will receive regular communications from your lender about changes in interest rates. Your monthly equivalent or EMI payments may increase, or the lender may send you a note suggesting an increase in your term or number of balance payments. It’s time for you to review your loan portfolio. The first check should be to determine the interest rate trend. A leading indicator is the yield on 10-year government bonds. It is usually the benchmark for interest rates set by the Reserve Bank of India for banks to borrow money from. It is easily accessible online and updated daily. If it increases month over month, interest rates will likely remain firm or continue to rise. If it shows a downward trend, it could mean the peak of interest rates and the trend of inflation. The yield on 10-year bonds is influenced by the expected inflation trend in an economy. You can then estimate the average interest rate you pay on all your loans. These can include your home, car, personal and credit card loans. Personal loans are growing faster than other loans because banks are overflowing with money. They want you to borrow more as interest rates rise. You will regularly receive new loan offers if you have a good credit rating. (Generally 750 and up) If you have excess cash in the bank and an outstanding credit card, you may want to pay that off first. Next come personal loans. The interest rates on them vary depending on your credit score. You may want to consider prepaying the principal amount in part or in full. Car loan agreements are usually airtight and you have little leeway to make changes. If you don’t have a credit card or personal loan, you can pay off your auto loan because it’s a short-term loan. There may be a prepayment penalty on all loans. If interest rates rise significantly, you may want to consider renewing your variable rate home loan. Competition between banks is intense. Chances are that relatively newer banks will offer you a refinance facility where you do a “balance transfer” to the new bank on your existing home loan. The new bank purchases the loan asset from your old bank. Banks facilitate this for their business needs. The new bank needs new customers, while the old bank may want to strengthen its capital by selling existing assets. Your home loan is your cheapest financing option. If you don’t have any other loans, you might want to wait before rushing to prepay that loan. According to most local and global experts, the Indian economy is expected to grow steadily over the next decade. This means that your stock market investments could also generate a steady return. Rushing to prepay the home loan by selling investments or stopping regular SIPs could hurt your finances. Talk to a professional advisor and work out a plan. Don’t rush to prepay a home loan India’s economy is expected to grow steadily over the next decade, according to global experts. This means that your stock market investments could also generate a steady return. Rushing to prepay the home loan by selling investments or stopping regular SIPs could hurt your finances. (The author is editor of www.moneyminute.in)

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