Planning to buy a car on loan? You may have to shell out extra

Reserve Bank of India increased the repo rate by 35 basis points on Wednesday, fuelling fear of higher car loan interest rates among new buyers and existing vehicle owners as well. This repo rate hike would result in the banks and non-banking lenders increasing interest rates for the new vehicle loans and the existing loans with floater rates. This would directly impact the new vehicle buyers and vehicle owners who have opted to pay EMI at floating interest rates. Along with the rising inflation, higher vehicle prices and sky-high petrol and diesel prices, this would put further pressure on the existing vehicle buyers. It could also put pressure on the auto industry's sales numbers.

With the latest repo rate hike, RBI has increased the overall benchmark rate to 6.25 per cent in a bid to tame inflation. This is not the first time the apex bank has increased the repo rate this year. This comes as the fifth consecutive repo rate hike from RBI after a 40 basis points increase in May, and 50 basis points hike each in June, August and September. Overall, RBI has raised the benchmark rate by 2.25 per cent since May this year, putting additional pressure on vehicle buyers and existing vehicle owners as well. However, RBI has clarified that there won't be another repo rate hike unless the inflation goes hyper.

Talking about the repo rate hike and its impact on vehicle buyers, Puneet Gupta, Director of S&P Mobility, said that the interest rate hike owing to the repo rates increase is unlikely to impact vehicle buyers in the immediate term. He believes it may take around six months for the impact to be visible on vehicle wholesale. However, dealers may start feeling the heat immediately, and working capital may start squeezing from here on, he said. “Overall benchmark rates are still less than 10 per cent, so we may still see high growth in the coming months," he added.