How Repo Rate Affects Personal Loan Rates, EMIs

The repo rate, set by the Reserve Bank of India (RBI), plays a key role in determining personal loan interest rates. It is the rate at which the RBI lends money to commercial banks against collateral, such as government securities. The RBI’s Monetary Policy Committee (MPC) decides the repo rate based on various economic factors.

Currently, the repo rate in India is 6.50%, a level maintained since February 2023. Changes in this rate directly impact the cost of borrowing for banks, which in turn affects personal loan interest rates.

How the Repo Rate Affects Personal Loan Interest Rates:

- When the repo rate increases: Borrowing becomes more expensive for banks, which may pass on the higher costs to borrowers by increasing personal loan interest rates. This makes loans more expensive and impacts borrowers' finances.

- When the repo rate decreases: Borrowing costs for banks decrease, and these savings may be passed on to consumers, making personal loans more affordable.

However, the exact effect on personal loan rates depends on various factors like deposit costs and operating expenses of banks. It is important to note that changes in the repo rate mainly affect **floating interest rate loans. Borrowers with fixed-rate loans will not see any change in their interest rates, regardless of repo rate changes.

Impact on EMI Payments:

The repo rate also influences your EMI payments. If the repo rate is cut, banks may lower interest rates on personal loans, resulting in lower EMIs. Conversely, if the repo rate is increased, EMIs may rise as banks increase their interest rates. This impact is only relevant for loans with floating interest rates, while fixed-rate loans remain unaffected.

In conclusion, changes in the repo rate affect personal loan interest rates, and borrowers should stay updated on RBI policy changes to understand how they may impact their loan costs.