A floating rate changes with the benchmark lending rate. Since Oct 2019, all new bank floating-rate loans must link to an external benchmark — most use the repo rate via EBLR (External Benchmark Lending Rate). Floating Rate = Benchmark + Spread. For example: 6.5% repo + 2.5% spread = 9%.
When the RBI changes repo rate, EMIs or tenure adjust within 1-3 months. Lenders must reset at least quarterly. Floating rates are typically 1-2% lower than fixed rates, making them popular. However, borrowers face uncertainty — EMIs can increase if rates rise.
Most loans in India are floating-rate. Understanding the mechanism helps borrowers anticipate EMI changes and decide if the lower starting rate is worth the variability risk.
Nihal Fintech monitors repo rate movements and proactively advises clients about upcoming EMI changes, helping them plan for rate fluctuations.
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