A change in the RBI's repo rate can eventually make borrowing more or less expensive. But that does not mean your personal loan interest rate changes every time the Reserve Bank of India (RBI) announces a new policy rate.

The actual impact depends on how your loan is priced, whether it is on a fixed or floating interest rate, and which benchmark your lender uses. For borrowers with a floating-rate loan linked to an external benchmark, the connection can be more direct.

So, how does the RBI repo rate personal loan interest connection work? And what should you actually look at when the RBI changes its policy rate?

What Is the RBI Repo Rate?

The RBI repo rate is the rate at which the RBI lends money to lenders against eligible securities for a specified period. It is one of the key tools the RBI uses as part of its monetary policy.

When the RBI changes the repo rate, it can influence the cost at which lenders access funds. This can, in turn, affect lending rates across different types of loans. As of August 2026, the RBI's repo rate stands at 5.25%* p.a., reset by the Monetary Policy Committee at its scheduled MPC meetings.

That rate by itself, however, does not tell you what interest rate you will get on a personal loan. Lenders consider the applicable benchmark along with their spread, risk assessment and other pricing factors.

How Does the RBI Repo Rate Impact Personal Loans?

The link is easiest to understand through a floating-rate loan.

For certain floating-rate retail loans offered by lenders, RBI regulations require the loan to be linked to an external benchmark. The RBI's specified external benchmarks include the policy repo rate, certain Treasury Bill yields and other specified market benchmarks.

If a lender chooses the repo rate as the benchmark, the lending rate can be represented simply as:

Personal loan interest rate = Repo rate + Spread

The spread is the additional component added by the lender. It can reflect factors such as operating costs and the borrower's credit risk, subject to the applicable regulatory framework and loan agreement.

For example, if the applicable repo-linked benchmark is 5.25% and the lender's spread is 5.75%, the resulting interest rate would be 11%.

If the repo rate later moves to 5.50%, the benchmark component increases by 0.25 percentage points. If the spread remains unchanged, the lending rate would also move upwards by 0.25 percentage points when the loan is reset.

This is the basic repo rate impact on loans.

Does Every Personal Loan Follow the Repo Rate?

No. This is an important distinction because the words "repo rate" and "personal loan interest rate" are sometimes treated as if they mean the same thing.

Lenders are required to link new floating-rate personal or retail loans to an external benchmark. The benchmark can be the RBI policy repo rate or another benchmark permitted under the RBI's framework.

So, if your personal loan is linked to the repo rate, a repo rate change can affect your borrowing cost. If it is linked to another permitted benchmark, the effect may work differently.

This also means that you should check your loan agreement or Key Facts Statement rather than assuming that every personal loan is directly linked to the repo rate.

What Happens to Your EMI When the Repo Rate Changes?

The impact on your EMI depends on your loan's interest-rate structure and the terms of the reset.

Suppose you have a floating-rate personal loan and its benchmark rises. The interest charged on the outstanding loan can increase. Depending on the lender's policy and your loan terms, this can result in:

• a higher EMI;
• a longer repayment tenure; or
• a combination of higher EMI and longer tenure.

The RBI requires regulated entities to communicate the possible impact of benchmark changes on EMI and/or tenure for floating-rate EMI-based personal loans. Borrowers must also be given information about the options available when rates rise.

How Often Does RBI Revise the Repo Rate?

The RBI reviews its monetary policy at scheduled meetings of the Monetary Policy Committee (MPC). A repo rate change is not automatic at every meeting.

The MPC considers factors such as inflation, economic growth and other economic conditions before deciding whether to change the policy rate or keep it unchanged.

It is also important to separate when RBI changes the repo rate from when your loan rate changes.

For external benchmark-linked loans, RBI's framework requires the interest rate to be reset at least once every three months. The exact reset mechanism and timing should be part of the loan terms.

So, a repo rate announcement does not necessarily mean that your EMI changes on the same day.

Fixed vs Floating Interest Rate: Which Is Better?

There is no single answer. It depends on how much certainty you want and how comfortable you are with changes in your borrowing cost.

Fixed interest rate

With a fixed-rate personal loan, the interest rate remains fixed according to the terms of the loan.

This can make monthly budgeting easier because you have greater certainty about your repayment schedule. A change in the repo rate does not directly change the fixed rate during the period for which it is fixed.

The trade-off is that you may not benefit from falling market interest rates in the same way a floating-rate borrower might.

Floating interest rate

A floating rate can move when the applicable benchmark changes.

If rates fall, your borrowing cost may reduce when the change is passed through under the loan's reset mechanism. But if rates rise, your interest cost can increase.

For a borrower who is comfortable with some variation in repayments and expects rates to remain favourable, a floating rate may be worth considering. Someone who values predictability may prefer a fixed-rate structure, where available.

The RBI's rules also require regulated entities to communicate the possible impact of benchmark changes on floating-rate personal loans.

What Should You Check Before Taking a Personal Loan?

The repo rate is useful context, but it should not be the only number you look at.

Before applying, check:

• Interest rate: Understand the rate being offered and whether it is fixed or floating.
• Benchmark: If the rate is floating, find out which benchmark it is linked to.
• Spread: Check how the lender determines the spread over the benchmark.
• Reset frequency: Understand when changes in the benchmark can affect your loan rate.
• EMI impact: Check what happens to your EMI if the interest rate rises.
• Tenure impact: Find out whether the lender can increase the tenure instead of, or along with, increasing the EMI.
• Key Facts Statement: Review the applicable loan costs and important terms before accepting the loan.

The RBI requires the possible impact of a benchmark-rate change on a floating-rate personal loan to be communicated to borrowers.

Use the Shriram Personal Loan EMI Calculator to see how your EMI could change under different rate scenarios, and check your eligibility before applying.

FAQs

1. How does the repo rate affect my loan?

The repo rate can affect a personal loan when the loan's interest rate is linked to the RBI repo rate as an external benchmark. If the benchmark changes, the applicable interest rate can change at the next reset, subject to the loan terms. This can affect the EMI, tenure or both.

2. Are personal loans linked to repo rate?

Not all personal loans are directly linked to the repo rate. For lenders, new floating-rate personal loans are required to use an external benchmark, which can include the RBI policy repo rate or other permitted benchmarks. The exact benchmark depends on the lender and loan terms.

3. Fixed or floating — which is better?

A fixed rate offers greater repayment certainty, while a floating rate can move up or down with the applicable benchmark. The better option depends on whether you prioritise predictable EMIs or are comfortable with changes in the interest rate.