Car, Two-Wheeler Loan EMIs Set to Fall as RBI Cuts Repo Rate to 6 per cent

The Reserve Bank of India (RBI) on Wednesday lowered its benchmark repo rate by 25 basis points to 6 per cent, marking the second consecutive rate cut this year. The decision, taken by the Monetary Policy Committee (MPC), reflects a proactive approach to stimulate domestic demand at a time when external headwinds pose risks to the economy. The repo rate — the rate at which the RBI lends money to commercial banks — serves as a key instrument for managing liquidity and influencing lending rates in the broader financial system.

The reduction in the repo rate is expected to translate into lower interest rates for retail borrowers, particularly those seeking auto and consumer loans. If banks transmit the full rate cut to customers, borrowers could see a tangible decline in their monthly loan repayments.

For instance, a car loan of ₹10 lakh taken for a period of five years at an earlier interest rate of 8.95% would result in a monthly EMI of ₹20,734. With the revised interest rate of 8.70% — assuming a full transmission of the 0.25 percentage point cut — the EMI would fall to ₹20,613, reflecting a monthly saving of ₹121.

Over the full five-year loan tenure, the total interest payable would decrease from ₹2,44,046 to ₹2,36,784, leading to an overall saving of ₹7,262. The total repayment amount would drop accordingly, from ₹12,44,046 to ₹12,36,784. Do note that this calculation is based on the SBI Securities car loan EMI calculator.

Venkatram Mamillapalle, Country CEO & MD, Renault India, said, “This move could significantly impact the automobile sector, especially if lending rates soften further. Lower EMIs can influence buying decisions, particularly in entry-level and mid-size segments. Combined with the Finance Minister’s zero tax announcement up to ₹12 lakh, the current policy landscape could enhance consumer affordability and stimulate demand across urban and rural markets.”

The rate cut is especially beneficial for borrowers holding loans on floating interest rates, as these rates are typically linked to external benchmarks such as the repo rate. In the current environment of falling rates, borrowers with floating rate loans are likely to see a reduction in their EMIs in the coming months, provided their lenders adjust rates in line with the RBI’s move.

On the other hand, fixed-rate loan customers will not experience any change in their repayment schedules, as their interest rates remain locked in for the entire loan term.

The RBI’s shift to an accommodative stance signals a clear policy bias toward supporting growth, amid slowing private consumption and muted industrial output. The central bank’s statement noted that global trade tensions, particularly rising US tariffs, pose downside risks to India’s export-driven sectors, which may have spillover effects on domestic demand.

Despite the policy cut, the actual benefit to borrowers will depend on the speed and extent to which banks pass on the rate reduction. Historically, the transmission of repo rate changes to end consumers has been slow due to factors such as high cost of funds and asset-liability mismatches within the banking sector.