RBI MPC December 2025: Repo Rate Cut 25 bps: Will Your Car Loan Get Cheaper?

The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points in its December 2025 monetary policy meeting, bringing it down to 5.25%. This marks the fourth rate cut of 2025, taking the total reduction to 125 basis points (1.25%) for the year.

With inflation cooling to 0.25% (October 2025) and GDP expanding by 8.2%, the central bank continues to support economic growth through lower borrowing costs.

Naturally, the big question for consumers is:

Will Your Car Loan Get Cheaper Now?

Yes, your auto loan is likely to get cheaper, but only if your bank passes on the repo rate cut to borrowers. Since most retail floating-rate loans (including car loans issued after October 2019) are linked to external benchmarks such as the repo rate, any reduction by the RBI typically results in a drop in interest rates during the next reset cycle (usually every 1–3 months).

How Does the Repo Rate Cut Impact Auto Loan EMIs?

Auto loans (car and two-wheeler loans) generally carry fixed tenures and floating or fixed interest structures. For floating-rate auto loans, the latest 0.25% rate cut can lower your EMI amounts.

Assuming a 5-year tenure and a current median auto loan interest rate of 8.75%, here’s how much you may save if the full benefit is passed on:

Auto Loan EMI Savings After 25 bps Rate Cut

What This Means for You

• The EMI reduction might look small monthly, but it adds up over a five-year tenure.
• Borrowers with larger auto loan amounts will save more.
• New car loan applicants may get more attractive rates immediately.

Why This Repo Rate Cut Matters?

• RBI has now delivered four cuts in 2025: Feb, April, June, and December.
• Total repo rate reduction in 2025 = 125 bps
• Credit is cheaper, boosting demand across rate-sensitive sectors like automobiles, real estate, banking, and financial services.

As banks begin adjusting their lending rates, expect auto loan EMIs to soften over the next few weeks to months depending on your loan’s interest reset date.

Will My Existing Car Loan EMI Reduce Automatically?

It depends on two things:

1. Whether your car loan is on a floating rate.

• If yes → EMI will reduce after reset.
• If no (fixed-rate loan) → EMI stays the same.

2. Your bank’s policy on passing repo rate benefits.

• Most banks pass the benefit partially or fully, but timelines vary.

Read more: RBI Decided to Cut Repo Rate by 0.25% to 5.25%: Retains Policy Stance as Neutral.

Conclusion

RBI’s December 2025 repo rate cut will likely make your car loan cheaper, especially if you’re on a repo-linked floating rate. While EMI reductions may appear modest for auto loans compared to home loans, the year-long savings are still meaningful, and new borrowers can enjoy lower starting interest rates.

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