How does fluctuation in interest rates affect variable-rate loans?

Fluctuations in interest rates have a direct impact on variable-rate personal loans in India. These loans are usually linked to a benchmark, such as the Reserve Bank of India’s repo rate. When the repo rate or other benchmark rises, your loan’s interest rate and EMI go up too. This means you’ll pay more each month and, if rates continue to climb, the total cost of your loan increases over time. On the other hand, if the benchmark rate falls, your EMI can decrease, making your loan more affordable.

This unpredictability makes it harder to plan your monthly budget, since your EMI isn’t fixed. Lenders typically review and adjust variable rates at regular intervals, like every three or six months. If you’re thinking about a variable-rate loan then consider whether you can manage higher payments if rates rise. Variable rates can look attractive when interest rates are low or expected to fall, but there’s always a risk they’ll move up.

It’s important to read your loan agreement carefully. Check how often the lender can change the rate and whether there are any caps or limits on increases. Certain lenders may offer a reset clause or a maximum cap to protect borrowers from sharp hikes. If you want certainty and steady payments then a fixed-rate loan might be a better fit. If comfortable with some risk and you want to benefit from possible rate drops, a variable-rate loan could be suitable for your needs. Always match your choice to your financial situation and risk appetite.