India’s borrowing landscape is set for another shift as the Reserve Bank of India cut the repo rate by 25 basis points to 5.25% in its December policy announcement. This marks the fourth rate cut of 2025, taking the total reduction to 125 bps for the year. The monetary policy committee voted unanimously for the cut while maintaining its neutral stance, signalling that the central bank continues to support growth as long as inflation stays soft.
The rate cut comes at a time when the economy is showing strong momentum. GDP touched an eight-quarter high of 8.2% in Q2 2025-26, while retail inflation eased sharply to 0.25% in October. With borrowing costs falling again, both home loan and auto loan customers are looking closely at how much they stand to gain.
For home loan borrowers, the repo-rate cut is more than just a headline. Since most banks link housing loan rates to the external benchmark lending rate, the impact tends to flow through relatively quickly.
If the full benefit is passed on, EMIs are expected to come down, and the savings could be meaningful—especially for long-term loans.
To understand this better, consider a ₹50 lakh home loan taken for 20 years. When the interest rate drops from 8.5% to 7.25%—the cumulative outcome of this year’s 125-bps reduction—the EMI falls by nearly ₹3,900. Over the full tenure, this smaller EMI translates to a saving of more than ₹9.29 lakh in total interest outgo.
Borrowers who hold their EMI constant and instead reduce the repayment period stand to save even more. In that case, the loan closes around 42 months earlier, cutting interest payments by over ₹18.32 lakh. For anyone balancing monthly budgets, these numbers show how even small rate cuts can reshape long-term affordability.
Car and two-wheeler buyers are also asking the same question: will their EMIs get lighter? The answer depends mainly on whether the loan is floating or fixed.
Auto loans issued after October 2019 are typically benchmarked to the repo rate, which means any reduction by the RBI can filter down during the next reset cycle. While the drop in EMIs may not be dramatic compared to home loans, it still adds up over a five-year repayment period.
For instance, with a 25-bps cut and a median interest rate shifting from 8.75% to 8.50%, a borrower with a ₹10 lakh car loan could save around ₹1,452 over a year. A ₹5 lakh loan sees an annual saving of ₹720, while a ₹15 lakh loan trims around ₹2,172 off yearly payments. These savings become more noticeable when spread across the tenure, and new borrowers could benefit from improved rates almost immediately
This is the central bank’s fourth rate cut this year—announcements made in February, April, June and now December. The cumulative reduction of 125 bps has made credit cheaper across the board, helping rate-sensitive sectors such as automobiles, real estate and financial services.
For existing borrowers, the exact benefit depends on the timing of the interest reset and whether the bank decides to pass the reduction fully or only partially. Customers with fixed-rate loans will not see changes, but those on floating-rate structures may see softer EMIs in the coming weeks.
As banks begin revising their lending rates, the next few weeks will show how quickly the repo-rate cut is transmitted to customers. Home loan borrowers are likely to feel the impact more visibly, while auto loan customers can expect modest but meaningful reductions.
Either way, the RBI’s latest move reinforces the broader trend of cheaper credit through 2025—an environment that could continue supporting consumption and investment unless inflation surprises on the upside.