The year 2025 proved highly significant for those tracking interest rates, as the Reserve Bank of India (RBI) 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 the 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 NBFC loans
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 a lower credit score.
Their lending rates are typically higher due to the risk profile of borrowers, and unlike banks, they are not permitted to accept public savings deposits, forcing them to raise money at higher market rates through debt markets and term loans from banks, which is then passed on to the customer
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 that changes in RBI rates do not immediately reflect in NBFC loan rates. Even though RBI guidelines encourage lenders to pass on rate cuts, the actual transmission has been uneven. According to RBI's April bulletin, scheduled commercial banks passed on about 87 basis points of the 125 bps rate cut and NBFCs passed on only about 12 basis points as of February 2026.
When rates rise
While the transmission of rate changes is more evident with the banks, certain practices can obscure the real impact of rate changes for borrowers.
When Hyderabad-based Ravi Korukonda took a home loan from a bank in 2019, the interest rate was around 7.25% but as interest rates climbed sharply over the next few years, his floating loan rate rose to nearly 9% by March 2023. Instead of increasing his monthly EMI, the lender chose to extend the tenure of the loan. As a result, his loan tenure increased dramatically—from the original 230 months to 345 months, an increase of 115 months or 9.6 years.
This is a common industry practice. Mangesh Zope, founder of Peaceful-Loans, a home loan advisory company, said lenders often avoid increasing EMI amount because borrowers notice that immediately, especially since it can disrupt their monthly budget and cash flow.
“Most people don’t pay attention to the tenure change communicated through emails,” he said. As a result, interest rate increases are often passed on by extending the loan tenure instead.
Like many borrowers, Korukonda absorbed the impact of rising rates through tenure extension rather than EMI increase. While this approach keeps monthly payments stable, it has long-term consequences like lower principal repayment in early years, higher total interest outgo, and a significantly longer loan life.
But for Korukonda, the rate cuts of 2025 came as a huge relief as he was able to reduce his EMI tenure by a total of 29 months and his interest rate is now 7.15% compared to 8.15% at the start of the year. He said, “While recent rate cuts are welcome, they hardly offset the EMIs I’ve already paid."
Repo-linked loans vs older systems
Since October 2019, all new retail loans have been linked to external benchmarks, most commonly the repo rate. This means interest rates on such loans move up or down in line with RBI policy changes, improving transparency. However, older loans linked to systems like MCLR (marginal cost of funds-based lending rate) or other internal benchmarks still exist.
These loans have longer reset periods, which slow down the transmission of rate changes.
“Rate transmission has improved, but it has not been uniform. Borrowers on older MCLR-linked loans are often still paying significantly more than those who moved to repo-linked products, and that gap is an opportunity,” said Adhil Shetty, CEO of BankBazaar.
Shetty adds that borrowers should not assume that rate cuts will automatically benefit them.
“We are at a point in the rate cycle where further cuts are not guaranteed. Borrowers who are still waiting for their lender to act are leaving savings on the table. The smarter move is to go looking for a better rate yourself,” he said.
When rate cuts don’t reach you
A Hyderabad-based borrower, who requested anonymity, said he took a loan in 2022 from a housing finance company at 7.5%, as the property fell under a gram panchayat area at the time. However, his rate later increased to 9.1% and remained there despite RBI rate cuts.
After paying a fee of ₹3,900, he requested a rate revision when the area was upgraded to a municipality. The lender reduced his rate to 8.1%, but it was still relatively high. He then explored refinancing and secured a loan offer from a public sector bank at 7.15%.
Zope explained that loans for gram panchayat properties are mostly only approved by NBFCs, while they offer good rates initially but they keep rising by 1-2%.
According to him, once the property falls under municipal limits, most government banks are open to taking over the loan and this can help borrowers get a lower, repo-linked interest rate. "If the borrower has a good CIBIL score and stable income, they can save about 1–2% on interest,” he said.
When should you refinance
According to Shetty, the decision to refinance should be based on clear financial calculations, and the impact is highest early in the loan cycle. He said when considering a switch, what matters is not what you have already paid, but what you are about to pay. The decision should be driven entirely by numbers, specifically your outstanding principal and remaining tenure.
He said in the first three to five years, a large portion of the EMI goes towards interest, so even a 50 to 75 basis point reduction can translate into meaningful savings. On a ₹50 lakh loan, that can mean over ₹2.3 lakh in interest saved and an EMI reduction of around ₹1,600, he said.
However, he added that if you are already 10 years or more into your loan, most of the interest has already been paid and the benefit of switching is often limited and may not justify the cost.
Practical strategies for borrowers
Mohan says borrowers have multiple strategies available during rate cycles. While NBFCs are not obligated to reduce rates immediately, customers can request a rate revision, negotiate with other lenders, and consider balance transfer options.
Banks and NBFCs may charge a small fee of around ₹1,000– ₹5,000 for rate revision. However, the revised rate may still not be the lowest available in the market, which is why negotiation becomes important.
For negotiating, first check rates offered by other banks, obtain a loan offer or sanction letter from another lender, and use it as leverage to request a lower rate from the current lender. If this doesn’t help, borrowers can consider a balance transfer, which means moving the outstanding loan to another lender offering a lower rate. However, this comes with a processing fee, legal and administrative charges and in some cases foreclosure charges.
According to financial planners, a balance transfer makes sense when the interest rate difference is at least 0.5% to 0.75% and the borrower is still in the early or mid-stage of the loan.
Mohan also said the emotional side of borrowing. He suggests that during periods of rate cuts, borrowers should focus on reducing the burden faster by making pre-payments that go towards the principal over and above the regular EMI as it directly reduces the outstanding principal and future interest is calculated on a lower base.
“If possible, increase the EMI amount,” he said and recommended an annual review of loan tenure and EMI as well as staying aware of RBI rate movements.
Staying alert
While falling rates can help reduce tenure and interest burden, especially for those with bank loans linked to external benchmarks, other borrowers continue to pay higher rates due to slower transmission, particularly in the NBFC segment.
According to Zope, as an NBFC borrower, you have to keep looking over your shoulder all the time to see if the terms are not the same as earlier.
Interest rate cycles are inevitable, but borrowers need to stay vigilant, as terms can change over time.