Home and Car Loan: The new Governor of the Reserve Bank of India (RBI) Sanjay Malhotra has given a big relief to the people by cutting policy interest rates. Under his leadership, the RBI has decided to cut the MPC after almost five years. It has cut policy interest rates by 0.25 per cent. Now the policy interest rate will be reduced from 6.5 to 6.25.
After the RBI cut interest rates, home loans, car loans and many other loans will also become cheaper. If you have taken a home or car loan at your floating rate, then its EMI will also be reduced. This is the second major relief for the general public in February 2025 after annual income up to Rs 12 lakh was tax-free in the Union Budget.
How will the RBI’s decision make loans cheaper?
All banks borrow money from the RBI to give loans. The rate at which RBI lends them is called repo rate. Now suppose the repo rate is 6 per cent, now that banks will get a 6 per cent loan from the RBI, they will not be able to lend at a cheaper rate. Rather, they will have to pay off the loan more expensively, as they will also have to look at the cost of their earnings.
So, whenever the RBI lowers or increases the repo rate, banks also make loans cheaper or more expensive. For example, this time the RBI has cut the repo rate. Along with this, banks will get cheaper loans from the central bank and they will also benefit the general public by reducing the interest rate. This will make it cheaper for you to take a car loan, home loan or personal loan. And your EMI (even monthly installment) will also be reduced.
When was the last time the interest was reduced
The RBI had earlier cut the repo rate by 0.40 per cent in May 2020 during the coronavirus pandemic. At that time, it had fallen by four percent. However, the Russia-Ukraine war increased global uncertainty and the RBI began raising interest rates to address the risks. It closed in February 2023. Interest rates have not changed since then.
