RBI recently cut the repo rate to 5.50%. Now the question comes: How RBI Repo Rate Cuts Affect Bank Personal Loans? This is important for anyone considering borrowing money. Understanding this link helps you time your loan applications and save on interest. Let’s break it down in simple terms.
The repo rate is the rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks. When RBI cuts the repo rate, it becomes cheaper for banks to borrow funds. The current repo rate as of June 2025 is 5.50%, aimed at encouraging borrowing and spending.
Know What is Repo Rate? How Does It Work?
How Does a Repo Rate Cut Impact Banks?
When the repo rate goes down, banks can access funds at a lower cost. This usually prompts banks to pass on the benefit to consumers by lowering their lending rates, especially for products like bank personal loans.
Here’s a quick look:
| Impact Area | Before Repo Rate Cut | After Repo Rate Cut |
| Cost of Funds for Banks | Higher | Lower |
| Interest Rates on Loans | Higher | Lower |
| Loan Demand | Moderate | Increases |
Bank Personal Loans and Repo Rate Cuts
Bank personal loans are unsecured loans that people take for various needs like medical emergencies, weddings, or travel. Since these loans have no collateral, the interest rates are typically higher than secured loans like home loans or car loans. But when the repo rate falls, banks often lower the interest rates on bank personal loans to attract more customers.
Example:
Suppose you take a bank personal loan of ₹5 lakh for 5 years at an interest rate of 13% before a repo rate cut. After a 0.25% repo rate cut, the bank may reduce the interest rate to 12.5%. Here’s the impact:
| Particulars | Before Repo Rate Cut | After Repo Rate Cut |
| Loan Amount | ₹5,00,000 | ₹5,00,000 |
| Interest Rate | 13% | 12.5% |
| EMI | ₹11,377 | ₹11,225 |
| Total Interest Paid | ₹1,82,620 | ₹1,73,500 |
You save around ₹9,120 in total interest just because of the repo rate cut.
How Quickly Do Banks Pass on Repo Rate Cuts?
It depends. Banks usually take time to adjust their rates, especially on bank personal loans. Some loans are linked to MCLR (Marginal Cost of Funds based Lending Rate), which may not change immediately. However, loans linked to external benchmarks like the RBI repo rate can reflect changes more quickly, sometimes within three months.
How Repo Rate Affects Different Types of Loans
| Loan Type | Response to Repo Rate Cuts |
| Home Loans | Quick (linked to repo rate) |
| Auto Loans | Moderate |
| Bank Personal Loans | Slower but noticeable |
| Credit Cards | Minimal impact |
Secured loans like home loans react faster because many are directly linked to the repo rate. Bank personal loans, while affected, may have a slower rate transmission depending on the bank’s internal cost structures and existing MCLR-linked loans.
Quick Facts:
- RBI reduced repo rate points from February 2019 to May 2020 to boost the economy, and many banks responded by reducing personal loan rates by 1-2% during that period.
- As of mid-2025, with GDP growth stabilising at approximately 6.5%, the RBI has started considering repo rate cuts to support further economic momentum and encourage lending.
Tips for Borrowers When Repo Rates Fall
- Compare Offers: When repo rates fall, check offers from multiple banks. Some may pass on the benefits faster than others.
- Negotiate: If you are an existing customer with a good credit score, try negotiating for a lower rate with your bank.
- Consider Balance Transfer: If your bank is slow in reducing rates, consider transferring your loan to a lender offering better terms.
- Check Loan Type: Ensure whether your loan is linked to an external benchmark or MCLR, as this affects how quickly you benefit from repo rate cuts.
Final Thoughts
So, how RBI repo rate cuts affect bank personal loans? In simple words, when the repo rate drops, banks can reduce interest rates, making bank personal loans cheaper for borrowers. Though not always immediate, the impact can save you a significant amount over the loan tenure. Keeping an eye on RBI policies can help you choose the right time to apply for a loan and get the best deal.
