How the Latest 25 bps RBI Repo Rate Cut Impacts Your Car Loan EMI?

The RBI recently announced a 25 basis points cut in the repo rate, bringing it down to 5.25%. Such a move directly reduces borrowing costs for banks, which can translate into lower interest rates for retail loans, including car loans. For borrowers, this means reduced EMIs and lower total interest outflow over the loan tenure. Here’s how this change impacts you through a clear, real-life scenario.

What Is the Repo Rate and Why Does It Matter?

The repo rate is the rate at which RBI lends money to commercial banks for short-term needs. When this rate drops, banks borrow at a lower cost. This reduction eventually influences lending rates for loans linked to repo-based benchmarks or MCLR. Even a small cut such as 25 basis points can meaningfully affect EMI payouts.

How Repo Rate Cuts Influence Car Loan Interest Rates?

Most car loans are offered at fixed or floating interest rates based on the bank’s internal lending benchmarks. After a repo rate cut, banks often adjust these rates downward, especially for new borrowers. Existing borrowers benefit from rate revisions during their reset periods. Lower interest rates help reduce your EMI or shorten the loan tenure based on the chosen repayment method.

Real-Life Example: How EMI Reduces After a Repo Rate Cut

Consider a borrower taking a car loan of ₹10 lakh for 5 years at an interest rate of 10%.

Before the 25 bps Repo Rate Cut:

• Loan Amount: ₹10,00,000
• Interest Rate: 10%
• Tenure: 5 years
• EMI: ₹21,247

After the RBI cut, assume the bank passes on the full benefit and reduces the car loan rate from 10% to 9.75%.

After the 25 bps Repo Rate Cut:

• Loan Amount: ₹10,00,000
• Interest Rate: 9.75%
• Tenure: 5 years
• EMI: ₹21,149

This results in a monthly saving of ₹98. Over the entire tenure of 5 years, the borrower saves ~₹6,000 in interest.

Long-Term Impact for Borrowers

While the EMI drop might appear small monthly, the cumulative impact is significant over several years. Borrowers with higher loan amounts or longer tenures enjoy even greater savings. Those planning to take a car loan during a rate-cut cycle stand to benefit the most from lower borrowing costs.

Also Read: How Will the RBI Repo Rate Cut of 25 Bps Affect Your Home Loan EMIs?

Conclusion

The RBI’s recent 25 bps repo rate cut can directly reduce car loan EMIs, making vehicle ownership more affordable. Understanding how such rate revisions affect EMIs helps borrowers make smarter financial decisions, whether they are planning to take a new loan or evaluating options to reduce ongoing loan costs. Use an EMI calculator can help you calculate easily. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a private recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.