Mumbai, February 7: In a significant move to ease financial burdens on borrowers, the Reserve Bank of India (RBI) announced a 25-basis point cut in the repo rate to 6.25% on Friday, February 7. This marks the first interest rate reduction by the RBI since the COVID-19 pandemic, breaking a period of steady hikes that began in April 2022. With the new rate cut, home loans, auto loans, and personal loans, EMIs are expected to become cheaper, providing relief to millions of borrowers.

The repo rate is the rate at which the RBI lends to commercial banks, and changes in this rate directly impact the interest rates on loans offered by banks. Following the RBI’s move, it is anticipated that banks will lower their interest rates, making loans more affordable for new and existing borrowers. RBI MPC Meet 2025: Reserve Bank of India Cuts Repo Rate by 25 Bps to 6.25%, First Reduction in 5 Years.

Home Loan Calculation After Repo Rate Cut

For home loan borrowers, the impact of the rate cut is significant. For instance, an INR 50 lakh home loan with an interest rate of 8.5% for a 20-year tenure would see a reduction in monthly EMIs. With the rate cut, the new interest rate would be 8.25%, lowering the EMI from INR 43,059 to INR 42,452. This translates into a savings of INR 607 per month or INR 7,284 annually. While this may seem modest, over the course of a 20- or 30-year loan term, the savings add up, providing long-term financial relief.

Car Loan Calculation After Repo Rate Cut

Similarly, car loan borrowers will benefit from lower EMIs. For an INR 10 lakh car loan with an interest rate of 9.5% for seven years, the EMI will drop from INR 16,659 to INR 16,507, resulting in a savings of INR 152 per month or INR 1,824 annually. Budget 2025: Nirmala Sitharaman To Hold Post-Budget Meeting With RBI Top Brass on February 8.

Personal Loan Calculation After Repo Rate Cut

Personal loan borrowers will also see some relief. For an INR 5 lakh personal loan at 12% interest for five years, the EMI will decrease from INR 11,282 to INR 11,149, saving INR 133 a month or INR 1,596 annually.

The latest repo rate cut follows a previous decision in December 2024 to lower the Cash Reserve Ratio (CRR) by 50 basis points. The CRR cut frees up more funds for banks, enabling them to lend more at reduced rates. This move, coupled with the RBI’s ongoing efforts to manage inflation, is expected to support borrowers and stimulate economic growth.

Disclaimer: This is a rough estimate. The actual EMI savings will depend on your bank’s decision regarding the loan rate cut. While the RBI’s repo rate cut will lead to a reduction in the MCLR, the overall interest rate on your loan also includes a spread, which is determined by individual banks. The extent of EMI reduction will depend on how much of the rate cut is passed on to customers by the bank. LatestLY advises you to read all the loan-related documents carefully.

(The above story first appeared on LatestLY on Feb 07, 2025 01:28 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).