Indian Rupee’s Fluctuation and Personal Loans
3–5 minutes
“Money is a terrible master but an excellent servant.” – P.T. Barnum.
Ever questioned why the interest rates of personal loans in India keep on changing?
The reason lies in the Indian rupee’s changes in the global market. A weakening rupee affects everything from petrol prices to the price of loans. It is the duty of the Reserve Bank of India (RBI) to manage these fluctuations.
If you are planning to take a personal loan, knowing how unstable the rupee can affect your borrowing costs which can help you make an informed decision.
In this blog, we’ll try to understand how the rupee’s movement influences personal loans.
How Does the Fluctuation of the Indian Rupee Affect Personal Loan Interest Rates?
You may have heard that the Indian rupee is not a fixed currency. It goes up and down daily against the US dollar and other currencies. Global trade, the flow of money, and governmental policies are some of the major factors that contribute to these ups and downs.
When the rupee falls, imports become highly priced, which drives up prices. That’s when the RBI comes in. It adjusts policies to regulate prices and ensure the economy remains stable.
One of the most important instruments employed by the RBI is the repo rate. Repo rate is a rate at which the banks borrow funds from the RBI. A repo rate makes lending for individuals expensive and thus escalates personal loans as well as other borrowings. The cost of borrowing falls if the repo rate is low, and hence people are motivated to borrow so that they can spend more or invest.
When inflation is low, the RBI keeps interest rates stable or even reduces it. People like you can borrow more and invest. The economy grows.
The above chart displays the historical variation in the RBI’s repo rate from year to year in a decreasing order. The repo rate has fluctuated according to economic situations over the last few years.
For people, the repo rate has direct implications on individual loans. An increase in the rate implies more expensive loans, while a decrease in the rate results in cheaper loans. Monitoring repo rate trends can assist in the making of better financial choices.
Why do currency depreciation and inflation affect borrowing cost?
- Weaker Rupee Makes Imports Costly
- Inflation Increases Because of Expensive Commodities
- RBI Increases Repo Rate to Manage Inflation
- Banks Raise Loan Interest Rates
- Stronger Rupee and Lesser Inflation Lower the Cost of Borrowing
Is a Weaker Rupee Making Personal Loans Costlier for Borrowers?
Indeed, a falling rupee can lead to higher personal loan rates of interest in India, although the impact is at the mercy of RBI policies and overall economic conditions.
If the rupee falls, inflationary pressures mount. In response, the RBI can increase the repo rate, compelling banks to increase loan interest rates. This has a direct impact on borrowers, leading to higher EMIs for borrowers like you.
Should Individuals Delay Taking a Personal Loan When the Rupee is Depreciating?
Deciding whether to take a personal loan when the rupee is falling depends on your financial situation. However, here are some things to consider:
- Check RBI Policies: If the RBI is increasing interest rates, waiting might be a good idea. If rates are stable, borrowing now may not be a problem.
- Loan Urgency: If you need funds immediately, delaying may not be an option. However, compare offers from different banks to get the best rate.
- Fixed vs. Floating Rates: The fixed-rate loan is not subject to any variation in rates, whereas the floating rate can become higher if the rupee further depreciates.
- Growth of the Indian Economy: Provided the economy grows steadily, there could be subdued inflation, so interest rates remain stable or low.
If the rupee is declining rapidly and interest rates are going up, holding out for a stable time could save you money. But if it is a pressing need, locating a lower-rate lender could assist.
Conclusion
Fluctuation of the Indian Rupee is a major contributor to personal loan interest rates in India. An exchange rate of a weaker rupee causes inflation, compelling the RBI to raise rates, and making the loan costly. Still, prudent planning can control your expenses.
At WeCredit, we assist borrowers in discovering the most favourable loan terms with low interest rates. Whether the rupee is depreciating or stable, making the right money decisions can facilitate borrowing. like
