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Car Loan EMIs to get cheaper as RBI cuts repo rate, again.

  • The EMIs on existing & new loans especially Car Loans are bound to reduce to some extent.

  • Following the announcement by Reserve Bank of India (RBI) Governor Shaktikanta Das, the loan EMIs are set to get cheaper particularly the car loans that are linked to the marginal cost of funds-based lending rate (MCLR) of banks.

The Reserve Bank of India (RBI) announced a cut in its key interest rates. RBI Governor Shaktikanta Das said that the repo rate has been cut by 40 basis points (0.4%) to 4 per cent and the reverse repo rate stands at 3.35 per cent. The reduction in interest rates on loans will effectively bring down EMIs for car loans. This is some good news at last for those who are paying EMIs for their vehicles, or those who plan to buy a new one.

Following the announcement by the central bank governor, the loan EMIs are set to get lower particularly the home & car loans that are linked to the marginal cost of funds based lending rate (MCLR) of the lending banks.


The 40 bps cut in the repo rate, which is the interest rate that the RBI charges for funds given to banks, will make funds cheaper for banks thus aiding banks to bring down lending rates for consumers. This comes at a time when credit uptake is sluggish and investments have halted in the economy. EMIs on home, car, personal and term loan rates are expected to come down in the coming days.


Generally, whenever the central bank reduces its key interest rates, various public sector and private sector banks of the country follow suit and reduce their lending rates to customers. This has an immediate impact on those loans which are fluctuating and are linked to the MCLR. However, banks would also reduce deposit rates on various tenures to manage their asset-liability positions. Savers and pensioners will see their returns coming down.


The EMIs of home loans and some car loans that have a fluctuating interest rate get affected whenever the banks announce changes in their interest rates. Simultaneously the deposit rates in the banks also change whenever the interest rates are changed.

In his third press conference in two months, the RBI Governor said the biggest blow of Covid-19 has been domestic consumption. “Industrial production shrank by 17% in March due to India’s lockdown, while manufacturing activity fell by 21%. The output of core industries contracted by 6.5%,” he said.


Saying that the GDP growth is estimated to remain in the negative, with some pick up in the second half, Das said the simultaneous fiscal, monetary and administration measures will create conditions for a gradual revival of activity in the second half of FY2021.

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