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RBI Repo Rate Cut Impacts: Apart from lower EMIs for existing borrowers, the RBI rate cut will also make home loan, auto loan and personal loan cheaper for new borrowers.
RBI Rate Cut Impact On EMIs.
RBI Repo Rate Impact: Days after the income tax cut, there is one more good news for the middle class as their EMI burden is going to come down after the RBI MPC on Friday slashed interest rates by 25 basis points (bps). For new borrowers also, home loan, auto loan and personal loan are going to get cheaper soon.
After the latest cut, the repo rate (the interest rate at which the RBI gives loan to banks) stands at 6.25 per cent, down from 6.50 per cent earlier.
This is the first interest rate cut by the RBI since Covid times (May 2020). Between May 2020 and April 2022, the RBI kept the repo rate unchanged at 4 per cent. It then started hiking the policy rates since April 2022 and gradually raised to 6.5 per cent till February 2023 before keeping it unchanged for two years until now.
With the RBI lowering the key policy rates, it is likely that banks will follow suit.
How Much Will You Save?
Let’s look at an example. Say you have a home loan of Rs 50 lakh at an interest rate of 8.5% for a tenure of 20 years. With the 25 basis points rate cut, your interest rate would drop to 8.25%. Here’s how that impacts your monthly EMI:
- Old EMI (at 8.5%): Rs 43,059
- New EMI (at 8.25%): Rs 42,452
So, you save about Rs 607 every month. Over the course of a year, that’s a savings of Rs 7,284!
This might not seem like a huge amount for some, but for many borrowers, every bit helps, especially when you factor in the long-term benefits over a 20- or 30-year loan term. This will also be reduced in the subsequent RBI MPC policy meetings.
Caveat: This is just a rough estimate. The final EMI savings will be known only after your bank takes a decision on EMI loan rate cuts. Your loan interest rate comprises two things — MCLR and spread. Though MCLR will be reduced after the repo rate cut by the RBI, the spread depends upon banks. It depends upon the quantum of interest rate cut transmission to customers.
Also, for existing borrowers, only those who took loan on floating interest rates will be benefitted by the rate cuts. However, for those who took loan on fixed interest rates, their EMIs will remain the same.
Personal Loan Example:
Let’s say you have a personal loan of Rs 5 lakh at an interest rate of 12% for a tenure of 5 years. With the 0.25% rate cut, your EMI would go down from:
- Old EMI (at 12%): Rs 11,282
- New EMI (at 11.75%): Rs 11,149
This would save you Rs 133 a month, or Rs 1,596 a year.
Car Loan Example:
For those with a car loan of Rs 10 lakh at an interest rate of 9.5% for a 7-year term, a 25-basis point reduction would bring down your EMI from:
- Old EMI (at 9.5%): Rs 16,659
- New EMI (at 9.25%): Rs 16,507
This translates to a Rs 152 saving per month, or Rs 1,824 annually.
In the previous policy review in December 2024, the RBI had cut the Cash Reserve Ratio (CRR) in two tranches of 25 basis points each, with effect from December 14 and December 28. CRR is the percentage of a bank’s total deposits that must be kept in cash with the RBI. A lower CRR frees up amount for banks to give that as a loan.
