Why rate cuts don't benefit every home loan borrower

Many lenders adjust loan tenure instead of EMIs, quietly increasing the total interest paid

- Ananya Grover

The year 2025 proved highly significant for those tracking interest rates, as the Reserve Bank of India embarked on its most aggressive easing cycle since 2019. Over the course of four policy meetings, the central bank reduced the repo rate by a total of 1.25 percentage points, bringing it down to 5.25%. Since then, the rate has remained unchanged.

For borrowers who had taken floating-rate home loans from banks, this came as a much-needed relief after they had faced a sharp rise in borrowing costs following RBI's 2.25% rate hike between May 2022 and February 2023. But for those who took loans from non-banking financial companies (NBFCs), rate transmission has been weaker than in bank loans.

Mint spoke to home loan borrowers from banks and NBFCs to understand their experiences.

Who should consider NBFCs

NBFCs and housing finance companies (HFCs) fill the gap in access to credit and service the segment that banks don't fund, said Jagadeesh Mohan, founder of financial services firm EMI Saver. These are suitable if you are buying a property in gram panchayat areas, are self-employed or have irregular income, need faster loan approvals, and have lower credit score.

Their lending rates are usually higher because they mostly can’t accept public deposits, so they raise funds through bond market and bank loans, a cost passed on to borrowers.

As a result, NBFC loans are typically not linked to external benchmarks such as the RBI's repo rate. Instead, they often rely on internal benchmarks such as the prime lending rate (PLR). This means changes in RBI rates do not immediately reflect in NBFC loan rates.

When rates rise