The core difference
A fixed-rate loan locks the interest rate for the loan's life. EMI stays constant; you trade certainty for paying a premium over the prevailing floating rate. A floating-rate loan is benchmarked to an external rate — for new retail loans in India, typically the RBI repo rate plus a fixed bank spread. As the repo rate moves, your effective rate moves, and either your EMI or your tenure adjusts at the next reset.
The fixed-rate premium isn't a bank ripoff — it reflects the interest-rate risk the bank takes on when it promises a 20-year rate. The longer the loan and the more volatile the rate environment, the bigger the premium. On home loans in India today, fixed sits roughly 100–200 bps above floating; on car loans the gap is narrower because the tenure is short.
Convention by loan type
| Loan type | Market default | Floating premium / discount | Prepayment penalty |
|---|---|---|---|
| Home loan | Floating (90%+ of new retail loans) | Floating is 100–200 bps cheaper than fixed | Zero on floating to individuals (RBI rule); 2–4% on fixed |
| Car loan | Fixed (most lenders) | Floating (when offered) is 25–50 bps cheaper | Floating to individuals: zero under 2025 Directions. Fixed: 2–6% by lender / tenure |
| Loan Against Property (LAP) | Floating | Similar to home loan | Floating to individuals: zero under 2025 Directions (post 1 Jan 2026). Fixed: capped at 3%. Non-individual: 2–4% |
For home loans the floating default is almost overwhelming — the cheaper headline rate plus the RBI prepayment-penalty exemption means the floating option carries a free embedded "switch to a better lender later" option that fixed doesn't. For car loans the market has converged on fixed simply because the 5-year tenure makes the rate-risk small. The RBI Pre-payment Charges on Loans Directions, 2025 (applicable to sanctions / renewals from 1 January 2026) extended the no-foreclosure-charge regime from housing loans alone to all floating-rate loans to individual borrowers — covering LAP, car loans (the few floating-rate ones), and any business-purpose loan to an individual. The change materially improves the prepayment economics on LAP and on any floating-rate non-housing retail loan.
RBI external benchmark lending rate (EBLR) regime
Since 1 October 2019, RBI has required all new floating-rate retail loans (home, auto, personal, MSME) from scheduled commercial banks to be benchmarked to an external rate — the RBI repo rate, the GoI 3-month or 6-month T-Bill yield, or any other FBIL-published benchmark. Nearly all banks chose the repo rate.
Your effective loan rate breaks into three components, each with very different stickiness:
- External benchmark (repo rate) — changes whenever the RBI MPC moves it. Currently 5.25% (as of 05 Dec 2025).
- Bank spread — fixed at the time of sanction. Cannot change for the loan's life. Typically 200–300 bps for retail home loans.
- Borrower-specific risk premium — fixed at sanction. Can change only on a major credit event (a deep CIBIL deterioration, a delinquency). Usually 0–50 bps.
So if your loan is "Repo + 2.50%" and the repo is 6.00%, your rate is 8.50%. When RBI cuts repo to 5.50%, your rate drops to 8.00% at the next quarterly reset — the bank cannot widen the spread to absorb the cut. This transparency was the headline win of EBLR over the older MCLR regime, where banks set the internal benchmark themselves and were slow to pass on cuts.
Repo rate history
Every change to the RBI repo rate since the EBLR framework was introduced. Most recent first. If your floating-rate loan was sanctioned after October 2019, every change here has flowed through to your EMI (with a quarterly reset lag).
| Effective date | Repo rate | Change | Notes |
|---|---|---|---|
| 05 Dec 2025 | 5.25% | -0.25% | Cut at the December 2025 MPC; rate has been held at 5.25% through the April 2026 review. |
| 06 Jun 2025 | 5.50% | -0.50% | Outsized 50 bps cut. |
| 09 Apr 2025 | 6.00% | -0.25% | |
| 07 Feb 2025 | 6.25% | -0.25% | First cut of the new easing cycle. |
| 08 Feb 2023 | 6.50% | +0.25% | Peak of the cycle; held through 2024. |
| 07 Dec 2022 | 6.25% | +0.35% | |
| 30 Sept 2022 | 5.90% | +0.50% | |
| 05 Aug 2022 | 5.40% | +0.50% | |
| 08 Jun 2022 | 4.90% | +0.50% | |
| 04 May 2022 | 4.40% | +0.40% | Off-cycle hike — start of the post-pandemic tightening cycle. |
| 22 May 2020 | 4.00% | -0.40% | Pandemic-era floor; held for over two years. |
| 27 Mar 2020 | 4.40% | -0.75% | Pandemic emergency cut. |
| 04 Oct 2019 | 5.15% | -0.25% | External Benchmark Lending Rate (EBLR) framework mandated from October 2019 — all new retail floating-rate loans linked to repo rate or 3-/6-month T-bill. |
| 07 Aug 2019 | 5.40% | -0.35% | |
| 06 Jun 2019 | 5.75% | -0.25% | |
| 04 Apr 2019 | 6.00% | -0.25% | |
| 07 Feb 2019 | 6.25% | -0.25% | Start of the pre-pandemic easing cycle. |
Source: RBI Monetary Policy Committee press releases (rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx). Last updated 2026-05-17.
How resets work on a floating-rate loan
Most retail floating-rate loans reset quarterly — every three months from the disbursement date, the bank recomputes your effective rate using the prevailing repo + your fixed spread. The bank then has two ways to absorb the change:
- Keep EMI fixed, adjust tenure — the default at most banks. A rate hike extends the loan by a few months; a rate cut shortens it. Cashflow stays constant.
- Keep tenure fixed, adjust EMI — your monthly outflow rises or falls with the rate. Total interest paid is more responsive but cashflow planning is harder.
RBI requires banks to give you the option to switch between these modes at every reset, free of charge. If your tenure has stretched well past the original term because of repeated rate hikes, ask the bank for an EMI adjustment instead — the math is the same but the schedule is more predictable.
Rule of thumb for EMI sensitivity: a 25 bps move changes the EMI on a ₹50 lakh / 20-year home loan by roughly ₹800–₹900/month. On a ₹10 lakh / 5-year loan, the same move changes the EMI by ₹100–₹150/month.
When fixed-rate fits
Floating is usually the better default for home loans because of the rate premium plus the embedded prepayment-flexibility option. Three exceptions where fixed makes sense:
- You're stretched on EMI-to-income — a 1–2% rate hike would push the EMI past 50% of your monthly take-home. Certainty is worth the premium.
- You're late in a hiking cycle and expect rates to keep rising — though timing the peak is famously hard. The 2022–23 hiking cycle peaked at 6.50% in February 2023; anyone who locked fixed at the very top got a great deal, but most attempts to "time" similar peaks miss by months.
- Short-tenure loan (under 5 years) where the rate premium over floating is small relative to the EMI certainty.
Switching mid-loan
Most banks allow a switch from floating to fixed (or vice versa) at any time during the loan, typically with a conversion fee of 0.5–1% of the outstanding. The cleaner path for borrowers who want a regime change — or just a better rate on the same regime — is to do a full balance transfer to another bank. For floating-to-floating retail home loan transfers, the originating bank cannot charge a prepayment penalty (RBI rule), and the receiving bank usually waives processing fees to win the account.
For modeling either move, the Home Loan Prepayment calculator will show the lifetime interest you'd save by switching at a lower rate, and the Home Loan EMI calculator will show the EMI at any candidate rate.