A floating-rate loan can change when its benchmark or the lender's spread changes under the contract. A rate reset may raise or lower the instalment, extend or shorten repayment time, or affect both. The exact result depends on the loan agreement, remaining balance and lender policy.
Ask for the before-and-after figures
Request the revised rate, effective date, EMI, remaining tenure and updated amortisation schedule. Ask which benchmark moved and whether the spread or any other component changed. Compare total remaining repayment as well as the next monthly instalment. A longer tenure may soften the monthly impact but can increase total interest; do not accept a schedule you cannot sustain.
Know the options for covered EMI-based floating personal loans
RBI's 18 August 2023 instructions cover EMI-based floating-rate personal loans from specified regulated entities. At a reset, those instructions require lenders to communicate the impact and provide choices that include increasing EMI, extending tenure, or a combination. Borrowers must also be given an option to prepay partly or fully during the loan tenure, subject to applicable instructions and disclosed charges. A switch to fixed rate is to be offered as per the lender's board-approved policy, which may set limits on how often it is available and may involve disclosed charges.
Housing loans and other products can have specific rules and contract terms. Ask your lender to confirm in writing which options apply to your particular facility, before making a decision.
Compare options using the same balance
- Keep the outstanding principal, current rate and remaining months the same in each comparison.
- Compare the revised EMI and total interest under each option.
- Check any switch, service or administrative charges before choosing.
- Ask whether a part-payment changes EMI, tenure or both.
- Keep the lender's revised schedule and communication.
RBI's circular also says that extending the tenure must not result in negative amortisation. If the displayed schedule seems unclear, ask the lender to explain how each payment is allocated. Source: RBI, Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans, 18 August 2023, and its FAQ updated 10 January 2025. Terms depend on the loan and lender. This is general education, not personal financial advice.