Home and Car Loan EMI May Rise if RBI Increases Repo Rate

Borrowers with home, car and other floating-rate loans may see changes in their borrowing costs if the Reserve Bank of India (RBI) raises the repo rate in the coming months.

The RBI currently has its policy repo rate at 5.25%. Market economists and financial analysts are watching the upcoming monetary policy meetings closely as inflation, crude oil prices, the rupee and global interest-rate trends could influence the central bank`s decision.

Valtrust director and co-founder Rahul Bhutoria has said that the RBI could change its policy stance in October and consider a 25-basis-point rate hike in December. He also noted that an October hike could be possible if the rupee weakens sharply.

Other research institutions have also projected possible rate increases. For example, Nomura expects 25-basis-point hikes in October and December, while SBI Research has also projected two 25-basis-point increases amid inflation and crude oil price risks. These are forecasts and do not represent confirmed RBI decisions.

How Could a Repo Rate Hike Affect Loan EMIs?

Home loans are commonly offered with floating interest rates, which means the interest rate can change when the lending rate linked to the loan is revised. If borrowing rates increase, borrowers may face a higher EMI or a longer repayment period, depending on the lender`s method of adjusting the loan.

Car loans and personal loans may also be affected when lenders revise their interest rates. However, the impact depends on whether the loan has a fixed or floating interest rate and on the terms of the individual loan agreement.

Borrowers should therefore check their loan`s interest-rate structure, outstanding balance, remaining tenure and applicable reset terms before estimating any possible change in EMI.