Is your bank charging higher spread rate on loan?:Know how to reduce it; how to get loan at lower interest

Suppose you suddenly need lakhs of rupees due to emergency and cannot borrow that much money from a friend or relative, what will you do? Obviously, you will take a loan from the bank. When taking a loan from a bank, people’s first question is usually what will be the interest rate on it? Note following points: Therefore, if you are thinking of taking a home loan, personal loan or car loan, it is very important to know about the spread rate. This will help you understand which bank will be beneficial to take a loan from and where you will have to pay less interest. Lets also ponder on folowing points: Question- What is spread rate and how is it related to loan interest rate? Answer- Spread rate is the additional interest (margin) that a bank adds on top of its fixed loan rate (base rate). This determines the final interest rate and EMI. If a bank’s base rate is 7% and it charges you a 2% spread, then you will have to pay a total interest of 9%. Understand this with an example- Question- What is the difference between Base Rate, Repo Rate and Spread Rate? Answer- All three interest rates are different, but together they determine our final loan rate. Let’s understand this through graphics. Question- How do banks determine spread rates on loans? Answer- Banks determine spread rates based on several factors. The most important are credit score and repayment track record. If a person has stable income and has paid all previous loans on time, the bank may offer a lower spread rate. Additionally, the type of loan matters. Secured loans (like home loans) have lower spreads, while banks increase spread rates on unsecured personal loans to cover higher risks. Question- Do spread rates differ between different banks? If yes, why? Answer- Yes, every bank has different costs, business strategy and risk calculation models. Therefore there are differences in spread rates. Question- Does lower spread rate always mean cheaper loan? Answer- Not necessarily. Therefore, the real comparison should always be made based on the final or effective interest rate. Additionally, processing fees, legal charges, pre-payment penalties and floating rate terms also affect the total spread rate. Floating interest rate is one where the interest rate is not fixed. It changes according to the repo rate. Question- How should customers understand and compare spread rates? Answer- If someone is taking a loan, they should not only look at the spread rate, but should also ask some important questions to the bank. See all questions in the graphic- Question – Can banks change the spread rate from time to time? Answer – Yes, banks can adjust spread rates based on their internal review from time to time. According to RBI guidelines, banks also keep changing the base rate or RLLR (Repo Linked Lending Rate). However, in many cases, the spread fixed at the time of loan sanction remains stable for the entire duration. Therefore, while reading the loan agreement, make sure to check whether the spread is fixed or resettable. This affects whether your EMI can suddenly increase or decrease. Question – What can a customer do to reduce the spread rate? Answer- The method of determining spread rate is not arbitrary. Banks consider some important factors while setting spread rates: Overall, the point is that banks don’t decide spread rates by looking at the customer’s face. They are basically doing risk calculations. They check how likely it is for this loan to be repaid on time. There is only one way for a customer to get a lower spread rate – their financial profile should be very strong. See the ways to reduce spread rate in the graphic below. Question- What mistakes cause banks to charge higher spread rates? Answer- Banks may charge higher spread rates due to certain customer mistakes or risks. Such as-