For the third time in a row, Reserve Bank of India’s monetary policy committee announced that the Repo Rate (RR) has been cut by 0.25%. It has reduced from 6% to 5.75%. The repo rate is the rate at which the RBI lends to the commercial banks. This is the lowest in 9 years.

If the benefits of this rate are given to the customers on behalf of the banks then the borrowers can get some relief in the EMI because banks can reduce the interest rate on loans. The reduction in repo rate means that the marginal cost based lending rate (MCLR) of banks will also be reduced. Instead of interest to be borrowed, the banks have started using MCLR now. However, it depends on banks for how much and how much they give the benefit of a reduction in the repo rate.

How your EMI can change?

See this example to understand the concept:

The total amount of loan = 30 Lakhs
Time = 20 years
Old interest rate = 8.6% | New interest rate = 8.35%
Old EMI = Rs. 26,225/- | New EMI= Rs. 25,751/-
Total relief in EMIs = Rs. 474/- per month

When the RBI cuts the repo rate, the bank also makes changes to your EMI accordingly, but this statement is not immediately visible in your statement. You will have to apply for it in your bank, after which the bank will adjust it accordingly. The work is done by the bank itself later, but the amount of money you get when adjusted, you get it at the end of the loan.

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