Education Loan EMI Interest Rate / RBI Repo Rate Query

Hello All,

I hope everyone had a good start to the New Year :)

I have an Education Loan from Bank of Baroda for which I am paying the EMI currently. The first Loan disbursement was taken in January 2019 and If I remember correctly, when I had taken the Loan the Interest Rate was fixed and was 10.75%

In Oct. 2021 when I was abroad, the Bank reached out to us stating that as per the circular of RBI - RBI/2019-20/53 DBR.DIR.BC.No.14/13.03.00/2019-20 (I found the Circular Online and have posted the link below) we need to link the interest rate to RBI's repo rate. Accordingly, we did not think about it much and gave the consent to do that.

The Circular linked below - - noti53b238d8eb8cd847e7ae8031090f4dce00.pdf

Now, on Dec. 30 2023 I have received an Email from the Bank stating that due to an increase in the Repo Rate/Benchmark Rate/Spread, the Rate of Interest on my Loan has also increased. Accordingly, the Bank has provided us with following options:

(1) Increase EMI (2) Elongate Loan Tenure (3) Combination of Option 1 and Option 2 (4) Loan prepayment either in part or full (5) Switching from Floating to Fixed Rate of Interest.

I am planning to visit the Bank. However before I visit them, I have following queries -

1.Regarding the circular I have the following questions.
a) As per the circular in Oct 2021, was it compulsory for us to link the Interest rate to RBI's repo rate or we could have denied and continued as it is ?
b) With our consent did we also end up switching to a Floating Rate of Interest from a Fixed Rate of Interest ?

2) After googling, I understand that as per RBI's last meeting in the first week of December 2023 they have decided to keep Repo Rate unchanged. Then in this case, on what basis is the Bank increasing the Rate of Interest on our Loan ?

3) Also as per the circular, if all Loans are to be linked to the RBI's repo rate(which changes periodically), then on what basis is the Bank offering us the option to opt for a Fixed Rate of Interest ?

4) Since now I have the option to select Fixed or Floating rate of Interest, then is it better to have a Fixed or Floating rate of interest ? Why ?

5) I understand that one of the factors which affects RBI's repo rate(and hence my Loan's Rate of Interest) is inflation. What are the other factors which affect my Education Loan's Rate of Interest ? For e.g. will the upcoming change in US Fed Rates affect RBI repo rate and hence my Education Loan Interest ?

I would like to take an informed decision and hence would be grateful if the members here can enlighten me w.r.t above points.


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