The Reserve Bank of India (RBI) has again reduced the repo rate by 25 basis points to 6.00% from 6.25%. Based on external benchmarks, this will likely minimise borrowing costs and cut EMIs on home, automobile, and personal loans.
But how much will you actually save if you’re currently paying an EMI of ₹15,000? Let’s break it down.
What Is the Repo Rate and Why Does It Matter?
The repo rate is the interest rate at which the RBI lends money to commercial banks. A reduction in the repo rate usually leads banks to lower their loan interest rates, especially for floating-rate loans linked to repo. As a result, borrowers pay less in EMIs, bringing monthly relief.
EMI Impact: A Real-World ₹15,000 Case
Let’s assume a borrower is paying an EMI of ₹15,000 per month for a loan with:
- Tenure: 15 years (180 months)
- Interest rate before cut: 9.25%
- Interest rate after cut: 9.00%
We’ll first use the EMI formula to work out the numbers.
EMI Formula in Simple Words
To calculate EMI, use this formula:
EMI = [P × r × (1 + r)^n] / [(1 + r)^n – 1]
Where:
- P is the principal loan amount
- r is the monthly interest rate (annual rate ÷ 12 ÷ 100)
- n is the loan tenure in months
We reverse-engineer the principal from the original EMI of ₹15,000 (at 9.25% for 15 years), which gives us a loan amount of approx. ₹13.57 lakh.
New EMI After Rate Cut
Now, applying the new interest rate of 9.00%, we calculate the revised EMI for ₹13.57 lakh:
- Interest Rate: 9.00% → Monthly rate = 0.0075
- Tenure: 180 months
- Principal: ₹13.57 lakh
New EMI = ₹14,770 approx.
Monthly and Annual Savings
ItemBefore (9.25%)After (9.00%)
Monthly EMI ₹15,000 ₹14,770
Monthly Savings – ₹230
Annual Savings – ₹2,760
Why Even 0.25% Matters
Even a seemingly small 0.25% cut can reduce the overall interest paid over time by thousands of rupees. For bigger loans like ₹30–50 lakh, this could mean EMI savings of ₹1,000/month or more.
What Should You Do?
- Existing borrowers: If your home or car loan is repo-linked, your bank will usually pass on the benefit automatically.
- New borrowers: Now is a great time to take a loan with lower interest rates.
- Old borrowers (non-repo linked): Consider refinancing or switching to a repo-linked plan.
The RBI‘s recent action to take the repo rate to 6.00% indicates that it is keen to stimulate economic growth by reducing financial pressures. For the borrower, this means actual cash savings each month—the first one from your very next EMI.
Also Read: RBI Fines HDFC Bank ₹75L for KYC Norm Breach
