The Impact Of Interest Rate Changes On Your EMI & Repayment

When taking a gold loan, along with repaying the actual loan amount, you also have to pay extra interest charges. This interest rate is the additional cost to you for borrowing money against your gold. Now, if during your loan period, the interest rate increases or decreases – your regular EMI amount will also change. So, it’s super important to know how these changes in interest rates can shake up your loan payments. Let’s keep it simple and figure it out.

1. Interest rate basics:

Alright, let’s start with the basics. The interest rate is the cost of borrowing money. When you take a gold loan, the lender charges you interest on the amount you borrow. This interest is a percentage of the loan amount.

2. Impact on EMI:

Now, the EMI is the fixed amount you pay every month to repay your loan. It includes both the principal amount (the actual loan) and the interest. When the interest rate changes, it directly affects the EMI. Here’s how:

  • Increased interest rate: If the interest rate goes up, your EMI will also increase. This is because you’re now paying a higher percentage of interest on the loan amount.
  • Decreased interest rate: Conversely, if the interest rate decreases, your EMI will decrease. With a lower interest rate, you pay less for borrowing the same amount of money.

3. Total repayment amount:

Now, let’s talk about the total amount you repay over the entire loan tenure. This is where the impact of interest rate changes becomes even more significant.

  • Increased interest rate: If the interest rate goes up, not only does your EMI increase, but the total amount you repay over the loan tenure also goes up. It’s like paying more for the privilege of borrowing money.
  • Decreased interest rate: On the flip side, if the interest rate goes down, your EMI decreases, and the total repayment amount over the loan tenure decreases as well. You end up paying less in total.

4. Example: 

Let’s use an example to understand how interest rate changes affect a gold loan. Suppose you borrow Rs. 50,000 at 10% interest for 12 months, resulting in an EMI of about Rs. 4,333.

  • Increased interest (15%):
    • New EMI: Rs. 4,583
    • Total Repayment: Rs. 55,000
  • Decreased interest (8%):
    • New EMI: Rs. 4,194
    • Total Repayment: Rs. 50,333

So, if the interest rate goes up, your monthly payment and total repayment increase. If it goes down, they decrease. It shows how even a small change in interest can impact your loan payments which is particularly important for entrepreneurs seeking MSME loan for new business ventures.

5. Planning for interest rate changes:

Now that you understand the impact, it’s crucial to plan for potential interest rate changes especially for entrepreneurs seeking small business loans for women. If rates are expected to increase, you might want to consider opting for a fixed-rate loan, where your interest rate remains constant. On the other hand, if rates are expected to decrease, a variable or floating-rate loan might be more favorable.

In a nutshell:

The interest rate is a key player in the world of gold loans. Knowing how changes can affect your EMI and total repayment amount empowers you to make informed decisions about your loan. It ensures you’re financially prepared for any twists and turns in the interest rate journey.