HDFC Bank Interest Rate Hike: Calculate How Much Your EMI Will Increase
HDFC Bank, India’s largest private bank, has increased the interest rates on selected loans, impacting its customers. Starting from September 7th, customers will pay higher interest rates on certain HDFC Bank loans. The bank has raised its benchmark Marginal Cost of Lending Rate (MCLR) by 0.15%, or 15 basis points. These new rates took effect on September 7th, leading to increased EMIs for customers with HDFC home loans, car loans, personal loans, and more.
What is MCLR and how does it affect loan interest rates?
MCLR, introduced by the Reserve Bank of India in 2016, serves as the internal benchmark for banks providing credit and home loans under a floating interest rate system. MCLR is calculated based on the cost of funds, operating expenses, negative carry on cash reserve ratio (CRR), and tenor premium of the bank. MCLR varies across different tenures, such as overnight, one month, three months, six months, one year, etc.
The interest rate charged on a loan is determined by adding a spread over the MCLR of the corresponding tenure. For example, if the MCLR for one year is 9.15% and the spread is 0.50%, then the interest rate for a one-year loan will be 9.65%. The spread depends on various factors such as the credit risk profile of the borrower, the loan amount, the loan-to-value ratio, etc.
When MCLR increases, the cost of borrowing for customers increases as well. This means that the EMIs (equated monthly installments) that customers have to pay will also increase. Similarly, when MCLR decreases, the cost of borrowing and the EMIs will also decrease.
What are the latest HDFC Bank MCLR rates?
The latest HDFC Bank MCLR rates effective from September 7th are as follows:
| Tenor | MCLR |
|---|---|
| Overnight | 8.50% |
| One month | 8.55% |
| Three months | 8.80% |
| Six months | 9.05% |
| One year | 9.15% |
| Two years | 9.20% |
| Three years | 9.25% |
The revised Base Rate will be 9.20% and will be effective from June 16th. The benchmark PLR rate stands at 17.70%.
How to calculate EMI and how much will it increase?
EMI is the amount that a borrower has to pay every month to repay a loan. EMI depends on three factors: the loan amount (P), the interest rate (R), and the loan tenure (N). The formula to calculate EMI is:
$$EMI = \frac{P \times R \times (1+R)^N}{(1+R)^{N-1}}$$
To calculate how much EMI will increase due to the interest rate hike, we can use an online EMI calculator or a spreadsheet software like Excel.
For example, let us assume that a customer has taken a home loan of Rs.50 lakhs for 20 years at an interest rate of 9.10% (the previous one-year MCLR) with a spread of 0.50%. The EMI for this loan will be Rs.44,986.
Now, if the interest rate increases to 9.15% (the new one-year MCLR) with the same spread of 0.50%, then the new EMI will be Rs.45,108.
The difference between the old and new EMI is Rs.122 per month.
Similarly, we can calculate how much EMI will increase for different loan amounts, tenures, and spreads.
How to reduce the impact of interest rate hike on EMIs?
There are some ways to reduce the impact of interest rate hike on EMIs:
- Prepay some part of the loan if possible. This will reduce the principal amount and hence the interest burden.
- Negotiate with the bank to reduce the spread or switch to a lower MCLR tenure if available.
- Compare and switch to another lender who offers lower interest rates and charges.
- Opt for a longer loan tenure to reduce the monthly EMI amount. However, this will increase the total interest payable over the loan period.
- Choose a fixed interest rate loan instead of a floating interest rate loan if you expect further hikes in MCLR in future.
