RBI rate cuts: Interest rates cut start- What is the effect on your loan EMI?

The RBI on Friday announced that it would reduce the repo rate by 25 basis points. As a result, the interest rates, which are 6.5 percent, have now fallen to 6.25 percent. And with the latest decision of RBI, what is the impact on personal loan interest rates? Do people get relief? Learn here ..

What is the repo rate?

REPO rate is called interest rate on loans given by RBI to commercial banks. The RBI lends to commercial banks on government securities such as bureaucracy. The Central Bank Monetary Policy Committee (MPC) assesses various financial indicators and determines the repo rate. The MPC consists of six members, including the RBI Governor. MPC changes the repo rate according to monetary policy objectives.

The repo rate, which has been in the news for 11 months, is now 6.25 %.

What is the repo rate effect on personal loan interest rate?

Changes in repo rates can affect the interest rates of various loans including individual loans. When the central bank increases the repo rate, loans for banks will become expensive. Therefore, according to high repo rates, banks increase the interest rate on loan to borrowers. This will make the debt more cumbersome to the borrowers. This affects their economy.

However, when the RBI reduces the repo rate, commercial banks will be less burdened. It can also be transferred to customers. They can get loans with low interest rates! This makes personal debt cheaper for some borrowers. However, the change in repo rate depends on many factors, such as the cost of deposits and maintenance costs of banks, which will affect personal loan interest rates.

Remember one thing here! Interest rates on individual loans will be reduced. But what is the matter of earlier loans? The interest burden on you will be reduced only when you borrow at a floating interest rate. That is, if you choose the interest rate of fix before taking a personal loan, there will be no change in the interest rate due to the repo rate!

Similarly, people who take a personal loan with a floating option .. When the repo rate increases, interest rates should also be increased.

What is the effect of repo rate on EMI payment?

Personal loan interest rate determines your EMI payment. Repo rate has a significant impact on EMI payment. When RBI reduces the repo rate, banks can reduce interest rates on individual loans. It reduces EMI payment.

If RBI REPO increases the rate, banks can increase interest rates on individual loans. This increases the burden of EMI. However, it has been observed that the individual convertible interest rate due to changes in repo rate is only an impact on EMI. Fix rated loans have no effect on changes made at repo rate.

(Note: It should be remembered that taking personal loan will risk.)