RBI cuts repo rate to 6%: How much cheaper your car loan may now get

With interest rates on loans likely to go down, more people may consider new buying vehicles

The Reserve Bank of India (RBI) lowered its key repo rate on Wednesday for a second consecutive time and changed its monetary policy stance to accommodative from neutral, signalling its intention to support growth amid risks from US tariffs.

 

Repo rate being reduced to 6 per cent is expected to benefit borrowers of car and two-wheeler loans, which are part of the retail loan segment. If banks fully pass on the rate cut, such loan customers could see a decrease of 25 basis points (0.25 per cent) in their interest rates.

 

“The RBI’s latest move to cut the repo rate by 25 basis points to 6 per cent can make car loans more affordable. As banks and lenders borrow at lower costs from the RBI, they may reduce lending rates for consumers. This could lead to lower interest rates on new car loans, reducing monthly EMIs [equated monthly installment] and overall interest burden for borrowers,” said Adhil Shetty, chief executive officer of Bankbazaar.com.

 

 

“Existing car loans linked to external benchmarks like the repo rate may also see a reduction in rates. However, the extent of benefit depends on how quickly and how much banks pass on the rate cut to customers. Overall, this move aims to boost consumer spending, including auto purchases, amid economic uncertainties,” he said.  ALSO READ | Home loan EMIs set to fall after RBI rate cut: Tips to maximise savings 

Use a car loan calculator to find out how much your EMI would reduce if you took a loan of Rs 10 lakh for 5 years and interest rates went down. 

Current loan rate

 

Loan amount: Rs 10 lakh

 

Loan tenure: 5 years

 

Interest rate: 8.95 per cent per annum

 

EMI: Rs 20,734

 

Total interest over the tenure: Rs 2,44,046

 

Total loan payment: Rs 12,44,046

 

Potential EMI after rate cut

 

Loan amount: Rs 10 lakh

 

Loan tenure: 5 years

 

Interest rate: 8.70 per cent per annum (after a 0.25 per cent rate cut)

 

EMI: Rs 20,613

 

Total interest over the tenure: Rs 2,36,784

 

Total Payment: Rs 12,36,784

 

(Note: This calculation is based on the SBI Securities car loan EMI calculator.)

 

How much do you save on EMI and interest?

 

The car loan EMI calculation shows that a 0.25 per cent cut in the interest rate would reduce your EMI by Rs 121. If your car loan interest rate remains steady for the next 5 years, you’ll end up paying Rs 7,262 less in total interest.

 

Borrowers with floating interest rate car loans will benefit more

 

Car loans can be availed of on either a fixed or floating interest rate, depending on the borrower’s preference. With a fixed interest rate, there’s no change throughout the loan tenure. However, with a floating rate, the EMI may increase or decrease based on changes in the repo rate. So, in the current scenario of declining interest rates, the interest payable on car loans is also expected to come down.  Let us have a look at car loan rates by different banks compiled by paisabazaar.com: 

NEW CAR LOAN-RATES AND CHARGES
Name of Lender	Interest rate (%) p.a.	EMI (Rs)  Loan amount-5 lakh  Tenure-5 years	Processing fee  (% of loan amount)
Union Bank of India	8.45-10.20	10,246 - 10,673	Up to Rs 1,000
Punjab National Bank	8.50-10.35	10,258 - 10,710	Up to 0.25% (Rs. 1,000 - Rs. 1,500)
Bank of Baroda	8.80-12.45	10,331 - 11,236	0.50% (Rs 2,500 - Rs. 10,000)
Canara Bank	8.45-12.45	10,246 - 11,236	0.25% (Rs 1,000 - Rs. 5,000)  (Processing fees are 100% waived off from 1.01.2025 to 31.3.2025 for its Retail Loan Festival)
Bank of India#	8.75-12.20	10,319 - 11,173	Up to 0.25% (Rs. 2500 - Rs. 10,000)  (50% concession in the applicable processing fee on purchasing e-Vechicles)
UCO Bank	8.35-11.00	10,222 - 10,871	NIL
State Bank of India	9.10-10.15	10,403 - 10,660	NIL
IDBI Bank	8.80-9.60	10,331 - 10,525	Rs 2,500
Bank of Maharashtra*	8.45-12.75	10,246 - 11,313	0.25% of the loan amount (max. up to Rs. 15,000)
Indian Overseas Bank**	8.40-12.00	10,234 - 11,122	0.50% (Rs 500 - Rs 5,000)
ICICI Bank	9.10 onwards	10,403 onwards	Up to 2%
HDFC Bank	9.20 onwards	10,428 onwards	Up to 1% (Rs 3,500 - Rs 9,000)
Karnataka Bank	9.32-11.80	10,457 - 11,072	Up to 0.60% (Rs 2500 - Rs 11,000)
Federal Bank	10.40 onwards	10,722 onwards	Rs 2,000 - Rs 4,500
Punjab and Sind Bank***	8.70-10.10	10,307 - 10,648	0.25% (Rs 1,000-Rs 15,000)
Indian Bank	8.50-9.85	10,258 - 10,587	Rs. 1000
IDFC First Bank	9.99 onwards	10,621 onwards	Up to Rs 10,000
City Union Bank	14.45-14.95	11,751 - 11,882	1.25% (Min: Rs 750)
*0.25% interest rate concession for existing housing loan borrowers and corporate salary account holders.
**0.50% interest rate concession to borrowers with credit scores of 800 and above. Interest rate concession of 0.25% to borrowers having credit scores of 750-799.
***Concession of up to 50% on processing fee for PSB Apna Vahan Sugam.
#Processing fee charged is With Effect from 1st Feb 2025.
Rates and charges as of 2nd April 2025.
Source: Paisabazaar.com