You might have heard your parents and family members discuss about loans such as a home loan, car loan, car loans or personal loans. You would have learnt in 10th grade math class that loan consists of two parts: Principal and Interest Principal (The amount of money given to you by the bank) Interest Rate (The amount charged by the bank for giving you the loan) This interest rate charged by the bank has a directly proportional relationship with the Repo Rate. Simply put, If the repo rate is increased, your EMI amount will increase What is the Repo rate ? Repo-Rate is the rate at which the Reserve Bank of India lends money to all other banks in the country. Banks borrow money from the RBI and charge a rate higher than the repo rate while lending money to the public. For example, if the Rep Rate is at 6%, the banks could be charging you an interest of 8.5% - 9% on your loans Any increase in Repo rate will increase the interest amount you pay on your loan. Inform your family members that they have to prepare to pay higher amounts.
Some measures to tackle higher interest payments are:
1. Paying Additional EMI every year
2. Increasing your EMI by 5% every year
3. Use annual bonus/incentives to pay loans
4. Minimizing Your Expenses
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