The RBI has reduced the repo rate, but hasn't your EMI decreased? This method will immediately reduce your loan interest

The RBI recently reduced the repo rate, which is expected to provide relief to millions of loan borrowers. But if your bank hasn't reduced the interest rate yet, here's how you can immediately reduce your EMI.

On December 5th, the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points. Consequently, the repo rate has dropped from 5.5% to 5.25%. It is expected that this will soon provide relief to many borrowers and reduce their EMIs. Following this RBI decision, many banks have also reduced their Repo-Based Lending Rates (RBLR).

But if you feel that your bank is still delaying interest rate reductions and your EMIs are still as heavy as before, you have an option that can provide an immediate solution to this problem: loan refinancing.

What is loan refinancing?

Loan refinancing is a process in which you close an expensive loan and take a new one with a lower interest rate. This forecloses the old loan and initiates a new loan. If your credit score is good, another bank may offer you a loan that's even cheaper than the current market rate.

Reduced EMIs Immediately

The biggest benefit of refinancing is the immediate reduction in EMIs. Because the new loan comes at a lower interest rate, your monthly installments are lower than before. This is especially beneficial for home and car loan holders, as these typically have larger loan amounts.

You can choose the tenure of your choice

You have the option to change the loan tenure once you refinance. You can extend your tenure to lower your EMIs, or reduce it to save millions. Lower interest rates + shorter tenure = more savings.

Refinancing is a bit expensive.

However, keep in mind that refinancing isn't free. You may incur fees, such as:

But if the interest savings outweigh the fees, it's a wise decision.

When should you consider loan refinancing?

Refinancing is beneficial when:

You can get a loan at a significantly lower interest rate from another bank.

You took out a fixed-rate loan, but rates have fallen.

Your bank is delaying your transition to a floating-rate loan.

The EMI burden is increasing, and you want to restructure your tenure or EMI.

FAQs

Q1. Can loan refinancing be applied to all types of loans?

Yes, refinancing is possible on home loans, car loans, personal loans, and education loans.

Q2. Does refinancing affect your CIBIL score?

No, if done correctly, it does not negatively impact your score.

Q3. Does refinancing immediately reduce your EMI?

Yes, the EMI immediately reduces once you receive a lower interest rate.

Q4. Is refinancing always beneficial?

No. First, calculate whether the interest savings outweigh the fees.