Rate Shock? Here’s how savvy borrowers can beat the bank’s higher lending rates

Higher interest rates on loans are anticipated as a result of the major banks, including State Bank of India (SBI), Bank of Baroda (BOB), HDFC Bank, and Yes Bank, recently raising their marginal cost of funds-based lending rates (MCLR).

The growing cost of funds for banks is the primary cause of the MCLR increase. Banks incur increased overall costs as deposit rates rise to draw in more savings. Banks raise lending rates on borrowers to cover these higher costs and maintain their profit margins.

How will these higher borrowing rates impact borrowers?

Increasing lending rates can significantly impact your finances. Higher interest rates affect both personal and business finances in several ways. Let’s examine some of the potential consequences:

• Increased borrowing costs: Higher lending rates make borrowing more expensive. If you have existing loans or credit card balances with variable interest rates, your monthly payments might rise, straining your budget. Furthermore, new loans or credit lines you seek may come with higher interest rates, making financing purchases or investments more costly.
• Mortgage payments: For those with a variable-rate mortgage, increasing lending rates can result in higher monthly payments. This can affect your cash flow and potentially restrict your ability to save or invest in other areas.
• Business loans: The cost of capital for businesses may increase with increased lending rates. This may result in more costly business loans, which would make it more difficult to grow your company, buy new machinery, or recruit more employees. Additionally, profitability might be impacted if these higher expenses are not able to be passed on to customers.
• Decreased disposable income: People and companies may have less money available to them for investments or spending as interest rates rise. Lower consumer spending may result from this decline in disposable income, which might have more extensive economic repercussions.
• Impact on investments: Returns on investments may be impacted by higher interest rates. Bonds and other fixed-income investments, for example, may lose value when interest rates rise. Furthermore, increased borrowing costs for companies may have an impact on corporate profitability, which may then affect stock prices.

What should borrowers do?

While rising interest rates can pose challenges, taking proactive measures can help mitigate their effects. These include:

• Examine your spending: Examine your financial status at the moment and modify your spending plan to account for increased borrowing expenses. Find ways to reduce costs or increase revenue to offset the impact of rising rates.
• Refinance loans: To secure a lower interest rate before rates rise even further, if you have variable-rate loans or mortgages, you might want to refinance to a fixed-rate loan. In addition to providing stability, this might lower your monthly payments.
• Pay down debt: To mitigate the overall effects of rising rates, concentrate on paying off high-interest debt. Lowering your debt load will help lessen the impact of increased interest rates.
• Seek professional advice: For individualized advice specific to your financial circumstances, speak with a financial advisor or planner. They can help you create strategies to lessen the financial strain and manage the effects of rising rates.

Your finances may be strained by rising lending rates. On the other hand, you can lessen their effects and successfully manage your finances during times of rising interest rates by being proactive. Furthermore, ensure that you have enough insurance coverage because unanticipated costs can be more difficult to handle when finances are tight, especially in the event of an unexpected event like a sudden death