When the Reserve Bank of India (RBI) reduces the repo rate, it creates a ripple effect that eventually lowers loan EMIs for borrowers. But how exactly does this work, and how much can you save?
Let’s break it down.
What Is the Repo Rate?
The repo rate is the rate at which the RBI lends money to commercial banks. When this rate is cut, banks borrow funds more cheaply and are encouraged to lend at lower interest rates.
In June 2025, the RBI cut the repo rate by 50 basis points (bps) from 6.50% to 6.00%.
How It Affects EMIs
If your loan is linked to RLLR (Repo Linked Lending Rate) or EBR (External Benchmark Rate), the interest rate on your loan directly falls when the repo rate is reduced.
This means your EMI reduces, or your tenure becomes shorter (if you keep the EMI constant).
Example: EMI Before vs After Repo Cut
Let’s say you have a home loan of ₹30 lakhs for 20 years.
| Parameter | Before Repo Cut | After 50 bps Repo Cut |
| Interest Rate | 9.00% p.a. | 8.50% p.a. |
| Monthly EMI | ₹26,992 | ₹26,035 |
| Monthly Savings | — | ₹957 |
| Total Interest Paid (20 yrs) | ₹34.78 lakhs | ₹32.48 lakhs |
| Total Savings (20 yrs) | — | ₹2.30 lakhs |
That’s nearly ₹1,000 off every month, and over ₹2 lakh in lifetime savings just because of a 0.50% rate cut.
Fixed vs Floating Loans.
- ✅ Floating-rate loans (linked to RLLR): EMIs are likely to fall within 1–3 months after the repo cut.
- 🚫 Fixed-rate loans: EMI remains the same unless you refinance.
What Should You Do?
1. Check Your Loan Type
Make sure your loan is linked to RLLR or EBR. If it’s on MCLR or fixed rate, you may not benefit automatically.
2. Recalculate EMI
Use your bank’s EMI calculator to compare before vs after. You’ll be surprised by how much a small change adds up over time.
3. Talk to Your Bank
If your EMI hasn’t changed, reach out. Sometimes, the bank may delay passing on the benefit.
4. Refinance or Transfer Your Loan
If your lender hasn’t adjusted your rate, consider switching to one offering better terms.
Final Thoughts
Even a small repo rate cut, like 0.25% or 0.50% can lead to significant EMI savings over the long term.
Don’t ignore those bank emails or SMS updates. Stay alert, and make sure your loan benefits from RBI’s policy changes. A proactive approach today can lead to big financial relief tomorrow.