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Personal Finance News

Borrowed at a low Credit Score? Here's what you can do to reduce Home Loan EMI after repo rate cut

rajeev kumar
By Rajeev Kumar

3 min read | Updated on April 09, 2025, 14:20 IST

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SUMMARY

When RBI reduces the repo rate, the interest rates charged on floating-rate loans also go down. However, not all borrowers are allowed the full benefit of lower home loan interest rates, especially those with low credit scores.

credit score impact on home loan

Your credit score decides your final home loan interest rate. | Image source: Shutterstock

Home loans are set to become more affordable as the Reserve Bank of India (RBI) has reduced the repo rate in two successive bi-monthly monetary policy reviews. The central bank is expected to further reduce the repo rate in FY 2025-26.

Most of the home loans these days are floating rate loans linked to an external benchmark, which is generally the repo rate.

When RBI reduces the repo rate, the interest rates charged on these floating-rate loans also go down. However, not all borrowers are allowed the full benefit of lower home loan interest rates.

Borrowers with low credit scores get home loans at higher interest rates compared to those with higher credit scores. This practice is common across all lenders, including banks and housing finance companies. This article explains what you can do to reduce your home loan EMI if you borrowed at a low credit score in the past.

1. Check your credit score

Credit score generally improves when you pay your EMIs on time and maintain a good credit discipline. If you have been paying all your EMIs timely in last 2-3 years then your credit score must have improved. If your credit score is 750 or above then follow point two below. If not, you should work on improving your credit score.

2. Check your home loan account

Log in to your home loan account and check the interest rate your bank is currently charging. You don't need to do anything if your credit score is above 750 and the bank is already charging its lowest rate. If not, then it's time to get in touch with your lender as explained in point three.

3. Ask your lender to adjust the rate

You should ask your lender (either via email or by visiting its branch) to reduce your interest rate because of your improved credit score and the RBI's repo rate cut. If the lender refuses to give you a better deal, you may consider switching to a new lender. You may also inform your current lender of your intention to shift your home loan, which might prompt them to offer you a better deal, as lenders usually don't like to let the good borrowers go.

4. Transfer your home loan

If your current lender refuses to give you the best deal, you should transfer your home loan to another borrower. For this, you will need to do some research and, may be, legwork to find the lender willing to offer a cheaper interest rate.

“Home loan borrowers whose lenders don't pass on the rate cut could consider negotiating a lower rate or a balance transfer. They should keep their expectations realistic as there may be only partial relief, if any. Any potential EMI reduction should be used to prepay home loans or invest for higher returns instead of on mere consumption,” suggests Arun Puri, Chairman, ANAROCK Group

Please note that home loan transfer also involve processing fees and some other charges. You should ask the new lender to waive these extra charges to maximise your benefits.

If you have taken a home loan at a fixed interest rate, you may ask the lender to shift you to a floating rate loan. Generally, fixed-rate charges are higher than floating-rate loans. However, you may avoid shifting to a floating rate if you prefer the fixed rate system.

Upstox

About The Author

rajeev kumar
Rajeev Kumar is a Deputy Editor at Upstox, and covers personal finance stories. In over 11 years as a journalist, he has written over 2,000 articles on topics like income tax, mutual funds, credit cards, insurance, investing, savings, and pension. He has previously worked with organisations like 1% Club, The Financial Express, Zee Business and Hindustan Times.

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