When the RBI changes the repo rate, the news says "EMIs may change". Whether your own EMI changes depends on the kind of loan you have.
What is the repo rate?
The repo rate is the rate at which the RBI lends short-term money to banks. The RBI's Monetary Policy Committee reviews it every couple of months to manage inflation and growth. A higher repo rate generally makes borrowing costlier across the economy; a lower one makes it cheaper.
How it reaches your loan
- Floating-rate loans linked to an external benchmark — since October 2019 the RBI requires banks to link new floating-rate retail loans and loans to micro and small enterprises to an external benchmark, most commonly the repo rate. Your rate = benchmark + a spread. When the repo rate changes, your rate changes at the next reset date.
- Older floating loans linked to internal benchmarks such as MCLR move with a lag.
- Fixed-rate loans don't change. Most personal loans are fixed-rate, so a repo rate change usually doesn't affect an existing personal loan EMI.
When rates rise on a floating loan
Lenders often keep the EMI the same and extend the tenure. That can add a lot of interest over time. You can ask to:
- Raise the EMI to keep the original tenure,
- Prepay a lump sum — see the prepayment calculator,
- Switch to a cheaper lender — see balance transfer.
RBI rules also require lenders to explain resets and offer options such as switching to a fixed rate where available.
When rates fall
Check that the reduction is passed on at your reset date. If your spread is high compared with new offers, ask your lender for a better spread or consider moving.
For a new loan
Rates on new loans reflect the current rate cycle. Compare offers on the APR in the Key Fact Statement, and check whether the rate is fixed or floating — and flat or reducing. Plan with the EMI calculator.
This guide is general information, not financial advice. Interest rates, fees, eligibility and other terms are set by each lender and can change; the figures in examples are illustrative only. Oxon Fintech is a loan facilitation platform, not a lender — loans are sanctioned and disbursed by our lending partners.