Repo rate cut. When will my loan rate fall?

With the #RBI Governor reducing the #RepoRate by 25 basis points, many borrowers have one burning question: When will my #loan interest rates go down?

All retail floating-rate loans sanctioned after October 1, 2019, are linked to an external benchmark, usually the repo rate. This regime is called the Repo Linked Lending Rate (#RLLR). By design, any change in the repo rate should directly affect the interest rate you pay.
The Catch: Banks have the flexibility to pass on the benefit anytime within the quarter. So technically, they have until May to reduce rates for borrowers. This is also why we see, that banks are quick to reduce #FixedDeposit rates but often delay passing on lower interest rates for loans.

Will the Bank Reduce Tenure or #EMI?
In most cases, banks adjust loan tenure rather than EMI. Changing EMI amounts involves updating payment mandates, which adds administrative complexity. Therefore, tweaking tenure is simpler and preferred by lenders.

Understanding Your Loan Rate:
Your loan interest rate typically comprises two components:
Benchmark Rate (Repo Rate) + Spread (Fixed component)
While the repo rate changes periodically, the spread remains constant throughout the loan tenure.

What About Loans Taken Before October 1, 2019?
If your loan was sanctioned before this date, it's likely under the #MCLR (Marginal Cost of Lending Rate) regime, which tends to be higher than RLLR. You can always request your bank to switch to the RLLR regime for a one-time transition fee (negotiable). Even a few basis points of reduction can translate to significant savings over the loan term.

What If the Bank Doesn't Reduce Rates After 3 Months?
Check Your Loan Regime: Ensure your loan falls under RLLR.
Escalate: File a written complaint with the bank if the benefit hasn't been passed.
Escalation Channels: Nodal Officer of the bank --> RBI Ombudsman if the issue remains unresolved

Taking proactive steps and understanding your rights can help you manage your #debts better.

And if you are looking for advice on Personal finance, taxation, or Credit cards, feel free to reach out to me!