As I’ve discussed with my readers many a times, we are in the midst of a financial collapse. Governments can’t let it happen as it would cause a loss of trust in the ruling party. So what do they do? They try to manufacture fake prosperity by lowering interest rates.
How does lowering interest rate cause a boom in the economy? It incentivizes people to take out bigger loans to purchase houses, cars, personal loans and a lot of consumer goods. This in turn makes it so that the money velocity increases in the economy which makes it look like we’re in a recovery while the real economy is rotting underneath.
You need to understand how to take advantage of the moves taken by government and I’ll explain it to you.
What are REPO Rates?
REPO Rates speaking simply are the rates at which the RBI or any other central bank offers money to the Banks. These banks then in turn offer credit to their customers but with a Spread. As of this writing, the REPO rate is set at 4% meaning banks enjoy loans at 4%. Then there is a spread of 3% which makes your housing loan go to 7%. Banks call this interest rate the REPO Linked housing mortgage rate. Your student loan may be even cheaper and personal loan be more expensive. It all depends on the Spread that they use.
How to get REPO Linked Rates?
Visit your bank branch, fill out a form for switching to REPO rate. Pay a fee for this processing and your MCLR based loan which was hovering at around 8.25% will drop down to 7% provided you have a good credit score. That’s it. In order to obtain a good credit score, have a history of paying your housing loan EMI in full every month on time and don’t have any other late payment charges on any other loan or credit cards. I’ll discuss more on this in some future article.
Advantage of REPO Linked Rates:
With the entire world going down the Gutter, it is very likely that the interest rates stay low, go to Zero and even go to Negative. What it means for us as a consumer is that our interest rates will remain low as well providing savings in Lakhs of rupees over the years.
Is there a downside? No. There is no downside. Repo linked loans are just good overall. If government increases the interest rates by pulling up a Paul Volcker in order beat inflation, interest rates on all products will go up except for a fixed interest mortgage which no one takes anyway.
