Business Desk, New Delhi: Finance Minister Nirmala Sitharaman has given several gifts to the public in the budget. Now, RBI Governor Sanjay Malhotra has also shared great news. In its February MPC meeting, the central bank announced a 0.25% (25 basis points) cut in the repo rate. After five years, the RBI has reduced the policy interest rate. This will make home and car loans cheaper, and existing EMIs may also decrease.

What is the Repo Rate?

The repo rate is the interest rate at which banks borrow money from the RBI. A reduction in the repo rate makes it easier for banks to get loans from the central bank, enabling them to offer loans to their customers at lower interest rates. This benefits new borrowers, as their EMIs or loan tenure may decrease. Additionally, if someone has taken a loan on a floating interest rate, their EMIs will also reduce.

After a repo rate cut, home loan borrowers with floating interest rates have two options: they can either reduce their EMI or shorten their loan tenure.

If they choose to lower their EMI, it eases their monthly financial burden, leaving them with extra savings each month. On the other hand, reducing the tenure helps them repay the loan faster, leading to significant interest savings. This option is ideal for those who want to clear their debt sooner.

How much benefit does a lower interest rate provide?

The exact benefit depends on the loan amount and tenure. For example, if you take a loan of ₹30 lakh for 20 years at an 8.75% interest rate, your EMI will be ₹26,511, and the total repayment amount will be ₹33,62,717.

But if your bank reduces the interest rate by 0.25% after the RBI rate cut, your interest rate will become 8.5%. In that case, your EMI will be reduced to ₹26,035, giving you a direct benefit of ₹476 per month. Overall, you will have to pay a total of ₹32,48,327, which means you will save ₹1,14,390.

How to determine whether the EMI or tenure will decrease?

According to RBI guidelines, banks reduce the loan tenure when the repo rate decreases. This means that when the interest rate drops, your loan tenure will be shortened accordingly. Many banks, when offering loans on a floating rate, ask in advance whether you would prefer to adjust the tenure or the EMI when interest rates change.

How to Benefit from a Repo Rate Cut?

After the RBI announces a change in rates, if you want to adjust either your loan tenure or EMI to suit your convenience, but you didn’t choose this option while taking the loan, you can contact your bank or NBFC. You can request them to reduce the EMI instead of the tenure or vice versa.

How to Check the Benefits of a Repo Rate Cut?

When the repo rate is reduced, banks usually pass on the benefits to customers within a few days. They notify customers about these changes, and you can check the updates through net banking or the bank’s mobile app. Your loan statement will show any modifications in your EMI or loan tenure.

However, there is no fixed rule on how soon banks must pass on the repo rate cut benefits, and they are not obligated to do so. If your bank does not pass on the benefit, you can wait for some time or consider transferring your loan to another bank that offers lower interest rates.

Home Loan Interest Rates of Major Banks (as of February 7, 2025)

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