THE RESERVE BANK of India’s (RBI) monetary policy stance has shifted to neutral, signalling a pause and a more data-driven approach ahead. In such an environment, waiting for further rate cuts may not yield results, while the risk of rates inching up over time cannot be ignored. This makes the current window relatively favourable for locking in borrowing costs.
The current rate cycle appears to be at an inflection point.
The RBI has cut repo rate by 125 basis points since early 2025, which has brought borrowing costs down meaningfully. However, inflation risks are beginning to resurface, driven by energy prices, geopolitical tensions, and potential supply disruptions.
With CPI inflation projected to edge higher towards 4.6% in FY27 and possibly peak above 5% in certain quarters, the central bank is unlikely to continue cutting rates aggressively.
Supportive for borrowers
The broader market setup is supportive for borrowers at this stage. Lending rates have adjusted downward following the rate cuts, with home loan rates starting from 7.10% and car loans from 7.35% depending on the lender and borrower profile.
This directly reduces equated monthly instalments (EMIs) and overall interest outgo. Combined with relatively stable property prices and some moderation in automobile prices because of reduction in GST rates last year, affordability has improved on both fronts.
Adhil Shetty, chief executive officer, Bankbazaar, says borrowers are effectively benefiting from the dual advantage of lower financing costs and manageable asset prices. “If input costs or interest rates begin to rise again, this window could narrow, making current conditions comparatively attractive,” he says.
Current home loan interest rates are significantly lower than what they were two to three years ago.
Santosh Agarwal, chief executive officer, Paisabazaar, says with home and car loan interest rates considerably lower currently, borrowers can utilise this opportunity to purchase their planned home or vehicle. “However, they need to take into account a rise in the interest rates in future, resulting in an increase in tenure or rise in EMI, as interest rates are cyclical in nature,” she says.
Negotiate better rates
Borrowers must compare loan offers from multiple lenders as holding multiple offers will give them the leverage to secure a better deal. Stable income and reputed employer for the salaried class strengthens their negotiating position. Existing relationship with the bank (loans, salary accounts, fixed deposits, etc.) can help access best offers. A high credit score (preferably above 750) unlocks better loan terms and relatively lower rates. Higher down payment reduces the lender’s risk which in turn can help get better loan terms.
For existing borrowers, switching to a repo-linked loan is a smart decision. “MCLR-linked loans tend to transmit rate cuts with a lag, as resets typically happen every 6 to 12 months and are based on internal cost calculations,”says Shetty. In contrast, repo-linked loans adjust more quickly, with banks mandated to pass on changes within three months.
This difference is already visible on the ground. With the repo rate down to 5.5%, many repo-linked borrowers are seeing rates closer to 7.3%–7.5%, while MCLR-linked borrowers may still be paying around 9% or higher.