Auto Loan EMI to Get Cheaper After RBI Rate Cut: How Much You Can Save on Car and Bike Loans

Buying a car or a two-wheeler is set to become more affordable, thanks to the Reserve Bank of India’s latest rate cut. In its December monetary policy review, the RBI reduced the repo rate by 25 basis points to 5.25%. This marks the fourth rate cut of 2025, bringing the total reduction this year to 1.25%. With the benchmark rate now at its lowest point since July 2022, borrowers can expect noticeable relief in monthly loan payments.

Lower Interest Rates Will Benefit Auto Loan Borrowers

Experts believe that the fresh cut in the repo rate will strengthen domestic demand and make borrowing cheaper. Customers holding floating-rate loans — including home loans, car loans, and two-wheeler loans — stand to gain the most, as banks generally revise their lending rates in line with repo rate adjustments.

However, some analysts point out that banks may pass on the benefit gradually. According to Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, lenders might not react aggressively to the rate cut because it could put pressure on their net interest margins. Still, rate-sensitive sectors such as automobiles and real estate are expected to benefit.

Since October 2019, all new retail floating-rate loans have been linked to external benchmarks, typically the repo rate. This means any change in the repo automatically affects EMIs, usually within a reset cycle of 1–3 months.

How Much You Can Save on Auto Loan EMIs

If banks pass on the full 0.25% rate cut, car and bike loan EMIs will reduce accordingly. To understand how this impacts your monthly payments, consider a five-year auto loan at an existing interest rate of 8.75%. After a 0.25% reduction, the new rate becomes 8.50%.

Here’s the annual and five-year savings for popular loan amounts:

Even a small reduction adds up significantly over longer tenures, especially for high-value car loans.

Key Things to Consider Before Taking an Auto Loan

Lower EMIs are good news, but the final cost of ownership depends on several other factors. Many buyers focus only on monthly installments, overlooking important details that can save — or cost — thousands of rupees. Before signing an auto loan agreement, keep these essential points in mind:

1. Check the On-Road Price, Not Just the Ex-Showroom Cost

The real cost of owning a car includes RTO charges, insurance, handling fees, accessories, and other add-ons. Many buyers get surprised by the final bill because they only looked at the ex-showroom price initially. Always ask for a complete on-road price breakdown before finalizing your purchase.

2. You’re Not Bound to Buy Insurance from the Dealer

Dealers often bundle expensive insurance packages with new vehicles. However, you are fully free to purchase your insurance from any external company. In many cases, the same coverage costs much less outside. Compare premium quotes from two or three insurers before choosing one.

3. Never Skip the Test Drive

Specifications on paper never reveal the true experience of driving the vehicle. Ride comfort, engine noise, suspension quality, braking response, and seating ergonomics can only be judged during a test drive. Always drive the car at least once before taking a final decision.

4. Check Resale Value and Service Network

Some car models retain strong resale value and have a reliable service network, while others may exit the market quickly, making spare parts expensive and hard to find. Research the resale performance, service costs, and long-term reliability of the model you plan to buy.

5. Don’t Fall for Superficial Exchange and Discount Offers

Dealers often highlight exchange bonuses or festive discounts, but sometimes they adjust these benefits by adding extra charges elsewhere. Compare quotations from different dealerships and analyze the actual value of the offer, not just the headline discount.

Bottom Line

With the latest RBI repo rate cut, auto loans are expected to become cheaper across banks. While the reduction may seem small, the cumulative savings over the loan tenure can be substantial. However, a smart buyer looks beyond EMIs — evaluating on-road pricing, insurance options, resale prospects, and genuine discounts ensures maximum value for money.