Before taking a loan, read all about interest rates
23 Feb 2026

Navigating through the world of loans can be tricky, especially when it comes to understanding interest rates.

In India, interest rates are determined by a number of factors, including the Reserve Bank of India's monetary policy and market conditions.

Knowing how these rates affect loan choices is important for making informed financial decisions.

Here's a look at how interest rates influence loan selection in India.

Impact of RBI's monetary policy
#1

The Reserve Bank of India (RBI) plays a key role in determining interest rates through its monetary policy.

When the RBI increases the repo rate, borrowing becomes costlier as banks raise their lending rates.

Conversely, a lower repo rate makes loans cheaper.

Borrowers must keep an eye on these changes as they directly affect EMI calculations and overall loan affordability.

Fixed vs Variable interest rates
#2

When taking a loan, borrowers in India have to choose between fixed and variable interest rates.

A fixed rate means the interest remains constant throughout the tenure of the loan, offering predictability in EMIs.

A variable rate, on the other hand, changes with market conditions, which can be beneficial when rates go down but risky if they rise.

Borrowers should weigh their risk appetite and financial stability before choosing.

Credit score's influence on interest rates
#3

A borrower's credit score has a major impact on the interest rate they are offered.

A higher credit score means lower risk for lenders, which translates to lower interest rates on loans.

On the other hand, a lower credit score may result in higher rates or even loan rejections.

Maintaining a good credit score is important for getting favorable borrowing terms.

Inflation's effect on loan selection
#4

Inflation has a direct impact on interest rates and, consequently, on loan selection in India.

Higher inflation usually prompts lenders to increase interest rates to keep up with rising costs.

This makes borrowing more expensive for consumers who may have to pay higher EMIs or consider delaying their loan decisions until inflation stabilizes or decreases.