How the latest RBI repo rate cut affects your loans?
The Reserve Bank of India (RBI) recently announced a 25 basis points (0.25%) cut in the repo rate, bringing it down from 6.50% to 6.25%. If you have an ongoing loan—be it a home loan, personal loan, or car loan—you might be wondering what this means for you. Let’s break it down in a simple and fact-based way to help you understand the impact on your finances and how you can make the most of it.
Understanding the repo rate and why it matters
The repo rate is the interest rate at which the RBI lends money to commercial banks. When the RBI reduces this rate, borrowing costs for banks decrease, and ideally, banks pass on the benefit to consumers in the form of lower loan interest rates.
How will your existing loans be affected?
Home loan EMIs could get cheaper
- If your home loan is on a floating interest rate, a 0.25% cut in the repo rate could result in a proportionate reduction in your loan interest rate, provided your bank passes on the benefit.
- For instance, if you have a ₹50 lakh home loan at an interest rate of 8.5% for 20 years, your EMI before the cut would be approximately ₹43,391. After a 0.25% reduction (new rate 8.25%), your EMI would reduce to around ₹42,772, saving you ₹619 per month or ₹7,428 annually.
- Fixed-rate home loans remain unaffected, as their interest rates do not fluctuate with repo rate changes.
- Check out your EMI amount via our super EMI Calculator here: EMI Calculator
Personal loans and car loans may see slight relief
- Most personal and car loans have fixed interest rates, meaning they might not change immediately.
- If you have a loan linked to the Marginal Cost of Funds Based Lending Rate (MCLR) or an external benchmark like the repo rate, your interest rate could go down, reducing your EMI.
- For example, on a ₹10 lakh personal loan with a tenure of 5 years, if the interest rate drops from 12% to 11.75%, your EMI would decrease from approximately ₹22,244 to ₹22,110, saving ₹134 per month or ₹1,608 annually.
- Check out your EMI amount via our super EMI Calculator here: EMI Calculator
Credit card dues and overdraft facilities might remain unchanged
While credit card interest rates don’t directly depend on the repo rate, some overdraft facilities or credit lines linked to external benchmarks could see a reduction in interest rates.
What can you do to maximize the benefits?
Check with your bank about rate reductions
- If you have a floating-rate loan, ask your bank how and when they plan to adjust the interest rate.
- If your loan isn’t linked to the repo rate, consider refinancing or transferring to a repo-linked loan for better savings.
Negotiate for a lower rate
- Banks might not automatically pass on the full benefit of a rate cut. Negotiate with your lender, especially if you have a good credit score.
Use the lower EMI to prepay your loan
- If your EMIs reduce, use this as an opportunity to make prepayments and reduce your loan tenure.
- Check out your EMI amount via our super EMI Calculator here: EMI Calculator
Final thoughts
The RBI’s decision to cut the repo rate by 25 basis points is an opportunity for borrowers, especially women managing home finances or investing in property. Lower interest rates mean you can save more or reduce your financial burden. Stay informed, take proactive steps, and ensure your money works smarter for you!
- Check out your EMI amount via our super EMI Calculator here: EMI Calculator
