After getting some relief in income tax, there is another good news for the middle class! The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has cut the interest rates by 25 basis points (BPS). This means that the burden of EMI on your pocket is going to be reduced a bit.
There is also good news for those who are thinking of taking a new loan. Things like home loan, auto loan and personal loan can now become cheaper soon.
Why did RBI make this change?
The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday reduced the repo rate by 25 basis points to 6.25%. This is the first cut in interest rates by RBI in the last 5 years. Earlier, the rates were reduced in May 2020. Let us tell you that the repo rate is the rate at which RBI lends money to other banks.
Change after 5 years
This is the first time since the time of Covid in May 2020 that RBI has reduced interest rates. From May 2020 to April 2022, RBI kept the repo rate stable at 4%. Then, from April 2022, RBI gradually started increasing interest rates and increased it to 6.5% by February 2023. This rate remained at 6.5% for the last two years.
How much will you save?
Let’s understand this with an example. Suppose, you have taken a home loan of Rs 50 lakh at an interest rate of 8.5% for 20 years. After a reduction of 25 basis points, your interest rate will become 8.25%. Now let’s see how this will affect your monthly EMI:
Old EMI (at 8.5%): ₹43,059
New EMI (at 8.25%): ₹42,452
That means, you will save around ₹607 every month! Over the course of a year, this saving will add up to ₹7,284.
This may not seem like a huge amount to some, but for many loan borrowers, even small savings matter, especially when you consider a loan tenure of 20 or 30 years.
Personal loan example
Now let’s talk about a personal loan. Suppose, you have a personal loan of Rs 5 lakh at an interest rate of 12% for 5 years. How a 0.25% rate cut will reduce your EMI:
Old EMI (at 12%): ₹11,282
New EMI (at 11.75%): ₹11,149
This will help you save ₹133 per month or ₹1,596 per year.
Car loan example
And if you have taken a car loan of Rs 10 lakh at 9.5% interest rate for 7 years, a 25 basis points rate cut will reduce your EMI as follows:
Old EMI (at 9.5%): ₹16,659
New EMI (at 9.25%): ₹16,507
This means you will save ₹152 per month or ₹1,824 per year.
What does this mean for you?
This reduction in interest rates is a welcome step for the middle class people. This will reduce the burden of EMI a bit and people will get some relief. If you were thinking of taking a loan, then now may be a better time for you.
