'RBI repo rate cut won’t lower EMIs...' Expert explains why borrowers may overpay lakhs

The Reserve Bank of India (RBI) has recently slashed the repo rate by 0.50%, bringing it down from 6.00% to 5.50%. This step aims to stimulate economic growth and make borrowing cheaper. However, Chartered Accountant Nitin Kaushik warns that despite the rate cut, many borrowers might not see an immediate decrease in their Equated Monthly Instalments (EMIs). He emphasised, "People think a repo rate cut automatically lowers their EMIs, but that’s not true in most cases." Without proactive measures, borrowers could miss out on saving "over ₹2.6 lakh across your loan tenure."

To potentially benefit from the repo rate cut, borrowers need to understand its impact on loans linked to the Repo Linked Lending Rate (RLLR) or the External Benchmark Lending Rate (EBLR). Kaushik stated, "The repo rate cut only helps borrowers whose loans are linked to the repo rate — via Repo Linked Lending Rate (RLLR) or External Benchmark Lending Rate (EBLR)," adding, "And even then, the benefit isn’t automatic."

One primary reason borrowers might not see a reduction in their EMIs is that banks typically do not inform customers of rate reductions proactively. Borrowers have a limited window of 90 days to request these benefits. Missing this period could mean paying higher EMIs for years to come. Kaushik advises borrowers to take timely action to avoid overpaying due to lack of information from their banks.

Steps to ensure you benefit include confirming whether your loan is repo-linked or based on older systems like the Marginal Cost of Funds based Lending Rate (MCLR). If it's the latter, you might consider switching, though a fee between ₹2,000 and ₹5,000 may apply. This switch often recoups its cost within a few months via eventual savings. Kaushik also recommends verifying your loan’s reset date and ensuring your EMIs decrease accordingly using calculators.

Even if your interest rate lowers, you must confirm the reduction by sending an email with the subject "Interest Reset Request under RBI Circular 2019 (Revised 2024)," to your bank. Should your bank not comply, the issue can be escalated through the RBI's Complaint Management System under the category Loan > EMI > Interest Rate Issue. These steps are crucial to ensure you don't overpay, as Kaushik notes, "It’s your loan — own it."

Kaushik underscores the importance of borrower vigilance in light of potential further rate cuts, stating, "Don’t overpay just because your bank forgot to tell you." By taking proactive steps, borrowers can optimise the benefits of the repo rate cut and potentially save significantly over the tenure of their loans.