The repo rate will now be 6.25% instead of 6.50% after the Reserve Bank of India (RBI) announced a 0.25% reduction. Since banks would probably soon lower loan interest rates, this action should significantly alleviate the burden on borrowers of house, personal, and auto loans.
The main query, though, is whether you will need to go to the bank to lessen your loan payments or if your EMI would decrease on its own. Let’s make everything plain.
How Is Your EMI Reduced by a Repo Rate Cut?
The interest rate at which the RBI loans money to banks is known as the repo rate. Banks often cut lending rates when the RBI lowers the repo rate, which lowers the cost of loans for consumers. However, the sort of loan you have will determine whether or not your EMI decreases.
- Set Interest Rate Loans: Regardless of changes in the repo rate, your EMI will not change if you have a loan with a set interest rate.
- Floating Interest Rate Loans: When banks pass on the benefits of the repo rate fall, your EMI or loan tenure will decrease if your loan has a floating interest rate.
Will Your EMI Go Down on Its Own? Is a Bank Visit Necessary?
Your bank will automatically modify the interest rate on a variable rate loan in response to changes in the repo rate. However, the choice you made when obtaining the loan will determine whether your EMI drops or your loan term shortens:
- If you selected tenure adjustment, your loan duration will shorten but your EMI will stay the same.
- If you selected EMI adjustment, your EMI will automatically decrease.
💡 Instead of tenure, would you like to lower EMI? You must go to your bank and ask to have the loan repayment choice changed.
Are You Going to Take Out a Loan? This Is What You Must Do
Here are some things to think about if you intend to take out a personal, auto, or house loan:
- After the repo rate cut, observe how various banks modify their loan interest rates over the next few days.
- Prior to choosing the ideal alternative, compare interest rates from several institutions.
- Before completing your loan, look for any hidden costs, processing fees, or foreclosure charges.
However, what happens if your bank doesn’t lower the interest rate?
You can think about moving your loan to a different bank that offers a cheaper rate if your bank does not pass on the benefits of the repo rate drop and your loan interest is still excessive. But prior to switching:
- Make sure there are no additional processing fees or unstated costs associated with the new bank.
- Verify whether the interest savings outweigh the expenditures associated with the loan transfer.
Borrowers will benefit from the RBI repo rate drop in 2025, which could result in cheaper EMIs for personal, auto, and house loans. However, the type of loan you have and the policies of your bank will determine whether your EMI automatically decreases. Before deciding whether to take out a loan, wait for banks to release their updated interest rates.
For current borrowers, keep an eye on how your bank responds to the rate reduction and, if need, stop by to modify your EMI or look into loan transfer alternatives.
