Commercial loan

The commercial loan segment is not in the limelight but the rate hike in these accounts impacts the midsized businesses. Usually, small and medium businesses run on small margins, and therefore do not have much of a cushion to absorb the additional interest burden.

During a high interest rate regime, small and medium businesses should reduce their dependence on bank loans and go for alternate funding for their business needs.

Home loan

The interest rates on home loans have gone up quite significantly. Although the RBI has indicated a pause on further key rate hikes, it does not mean the interest rates will start coming down in the short term. Home loan borrowers should remain in touch with their banks for special schemes to reduce the interest rate. Also, home loan borrowers should plan alternate sources of income or reduce the loan burden through partial prepayments whenever possible.

Auto, consumer loan

Rising interest rates in this category is not significant as these loans are mostly for smaller amounts and for a shorter duration. Therefore, those with an auto or consumer loan should not worry about the higher interest outgo as the tenure is short and principal amount low.

Soft, unsecured loan

The amount under this category is usually quite small too. Although the rate of interest has gone up across the board, borrowers of these loans were already paying a high interest rate and therefore were used to it.
An important aspect of these loan schemes is the processing and disbursement fee. Many banks offer attractive schemes on soft loans but charge a hefty processing fee that ultimately increases the loan cost for the borrower.

Credit card loan

This loan attracts a very high interest rate as it comes under the 'highly unsecured loans' category. Credit card loans should be the last option for any borrower. In case one has to take a credit card loan, it is advisable to talk to the banker and get the loan converted to a soft loan.