The RBI Hiked Rates. My Brother’s Car Loan Didn’t Change. Here Is Why.

My brother was certain his car EMI would rise after the RBI’s hike. It did not change at all. Our neighbour’s home loan is a different story.

The first hike since 2023

On October 7, the RBI raised the repo rate by 25 basis points to 5.50%, its first increase in more than three years. Inflation had climbed back above 5%, pushed up by food prices after a weak monsoon and by the rupee near record lows. The Governor said a rate cut was off the table for now. My brother, who bought a car in March with an ₹8 lakh loan, assumed his EMI was about to go up.

It did not. His car loan, like most car loans in India, has a fixed interest rate. The bank set the rate when he borrowed, and it stays the same for all five years, regardless of what the RBI does. His EMI is ₹16,600 today and will be ₹16,600 in 2031.

Where the hike does land

Our neighbour has a ₹50 lakh home loan with twenty years left. Most home loans are floating, which means they are linked to an external benchmark, usually the repo rate. When the repo rate rises, the loan rate rises with it after the next reset. For a loan that size, a quarter-point increase adds roughly ₹800 a month to the EMI, or the bank extends the tenure so the EMI stays the same but the total interest rises.

Someone taking a new car loan this month will also feel it, but only slightly. On an ₹8 lakh loan over five years, a quarter-point higher rate adds about ₹100 to the monthly EMI. The bigger effect may be that banks become a bit stricter about who they lend to, which matters more for people with weaker credit scores.

Why the RBI does it anyway

If most of the effect is so small, why bother? Because the RBI is not trying to punish one borrower. It is trying to slightly cool spending across the whole economy, so that prices stop rising so fast. Higher rates also make rupee deposits more attractive, which can help the rupee by encouraging investors to keep money in India.

The lesson for our family was practical. Before borrowing, it is worth knowing whether a loan is fixed or floating, because that decides whether news from Mumbai changes your monthly budget. Fixed loans give certainty and floating loans give flexibility. Neither is always better, but only one of them will answer the phone when the RBI calls.