The Reserve Bank of India (RBI) regularly reviews its policy rates — especially the repo rate — to control inflation, manage liquidity, and support economic growth. These changes directly impact the interest rates on different loan types, affecting your monthly EMIs and total repayment cost.
1. Home Loans
Floating Rate Home Loans: Repo rate hikes increase interest rates, pushing EMIs higher; rate cuts bring them down.
Fixed Rate Home Loans: Unaffected in the short term, but can be revised after a fixed period.
Impact: Home loans are typically long-term, so even a small rate change can significantly affect the total interest payable.
2. Car Loans
Mostly offered at fixed rates, so short-term repo rate changes may not immediately affect EMIs.
Floating rate car loans (less common) can see EMI adjustments in line with repo rate changes.
Impact: Lesser sensitivity than home loans but still influenced by long-term lending rate trends.
3. Personal Loans
Usually shorter tenure and often at fixed rates, so repo rate changes have minimal immediate effect.
New personal loan interest rates can rise or fall depending on RBI policy direction.
Impact: More visible for new borrowers than for existing fixed-rate loan holders.
Floating vs Fixed Rates
Floating Rates: Directly linked to RBI’s repo rate, adjusting periodically.
Fixed Rates: Remain unchanged during the fixed term, offering stability but missing immediate benefits of rate cuts.
Borrower’s Takeaway
Track RBI policy announcements if you have floating rate loans.
Consider refinancing when rates drop significantly.
For stability, fixed rates are better; for long-term savings, floating can work when rates are expected to fall.
FAQs
Q1: How soon do repo rate changes affect my EMI?
A1: For floating rate loans, changes usually reflect within 1–3 months depending on the loan agreement.
Q2: Do all banks adjust rates the same way?
A2: No, banks may have different reset periods and policies.
Q3: Should I switch from fixed to floating rate when RBI cuts rates?
A3: Only if the rate cut is significant and switching costs are low.
Q4: Which loans are most affected by repo rate changes?
A4: Floating rate home loans are the most sensitive to policy rate movements.
Published on : 11th August
Published by : SMITA
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