The era of cheaper EMIs is finally here. The Reserve Bank of India’s surprise 50-basis-point repo rate cut on June 6, as part of a 100-basis-point reduction in 2025, is set to slash your EMIs, putting more money back in your pocket.
Public sector banks have already started lowering their interest rates after RBI cut the repo rate to 5.5% in its most recent credit policy. Major PSU banks such as Bank of Baroda, PNB, UCO Bank, Bank of India have cut their repo rate linked lending rates by as much as 50 basis points. Private sector banks are likely to follow suit.
The repo rate linked lending rate is the interest rate at which banks lend to customers. This is directly linked to the RBI’s repo rate and thereby ensures faster transmission of any rate cuts announced by the RBI. ((GFX 1 OUT)) So if you're an existing borrower with loans rates linked to the lending rate, you're likely to see immediate relief. These loans reset every three months, so if your reset is due now, the full rate cut will reflect in the next EMI installment you pay.
How much will you save? With the cumulative 100 basis points rate cut this year, on a Rs 50 lakh home loan over 20 years, the EMI drops by around Rs 3,164. For loans of Rs 1 crore the monthly savings would be ₹6,329 and for Rs 1.5 crore, savings of Rs 9,493, says Deepak Kumar Jain, Founder of CredManager.
But, it's also important to note that not all loans are linked to the repo rate. There are many borrowers, especially those who availed loans before October 2019, who are still tied to marginal cost of funding linked, that's MCLR or base rate linked loans.
MCLR is the minimum interest rate that a bank can offer on loans. This is calculated based on the bank's average cost of funds, operating expenses, required margins among other things. Since the MCLR is not directly influenced by the repo rate, it responds more slowly to any rate changes. So, borrowers who fall in this category will not see a reduction in the EMIs unless the banks specifically cut the MCLR.
While some banks like HDFC Bank have reduced their MCLR it is only a small cut of 10 to 20 basis points.
If you’re paying 50 bps or more above the lowest available rates, and especially if you're in the early years of your tenure, it’s worth exploring a refinance to a repo-linked loan. This can help bring down your interest cost significantly over the life of the loan, Adhil Shetty, CEO of Bankbazaar.com advises.
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With RBI’s bold repo rate cuts, borrowers linked to repo-based loans are already benefitting from lower EMIs. For those on MCLR or base rate loans, consider refinancing to a repo-linked loan. As banks continue to adjust their rates, keep an eye on your loan terms and make sure to check with your lender to ensure that you're making the most of this era of cheaper EMIs.
