Same bank, same credit score, same repo rate: Why your home loan interest rates can still be different

Even if your home loans are linked to the same repo rate and your credit score hasn’t changed, banks can charge different interest rates due to variations in the spread and other loan-specific factors.

Many home loan borrowers assume that if their loans are linked to the repo rate and their credit score has remained unchanged, the interest rate should also be the same. However, that is not how banks price repo-linked home loans.

A borrower may have more than one home loan from the same bank, for instance, a home purchase loan and a home loan top-up or may have taken separate home loans at different points in time. Even if the borrower’s credit score has not changed, each loan can carry a different interest rate because the repo rate is only one part of the pricing formula.

“The repo rate is only an external benchmark. Interest rates on loans also include a borrower-specific spread, which is determined by the lender’s policy, the borrower’s risk profile, the loan product and the bank’s prevailing pricing policy,” said Santosh Agarwal, CEO, Paisabazaar.

The spread is the additional margin that banks add over the repo rate. Unlike the repo rate, which is set by the Reserve Bank of India (RBI), the spread is decided by the lending bank and can differ from one home loan to another.

For example, if the RBI’s repo rate is 5.25 percent, a bank may price one home loan at repo rate + 2.25 percent spread, taking the effective interest rate to 7.50 percent. Another home loan may carry a 2.50 percent spread, resulting in an interest rate of 7.75 percent, even if the borrower has the same credit score. The difference arises because the spread depends on the bank’s assessment of the loan and the borrower.

What determines the spread?

Banks consider several factors while deciding the spread applicable to a home loan. These include the borrower’s income, internal risk assessment, loan-to-value (LTV) ratio, property profile, repayment capacity and the bank’s lending strategy at the time the loan is sanctioned.

As a result, two home loans taken by the same borrower from the same bank may carry different spreads even if both are linked to the same repo rate.

According to Agarwal, changes in a borrower’s income, repayment behaviour, leverage or internal risk grading can alter the lender’s assessment of credit risk even if the borrower’s credit score remains unchanged. Since banks rely on more than just the credit score while pricing loans, the applicable spread may vary.

Timing also matters

The interest rate can also differ simply because the home loans were sanctioned at different points in time.

“Banks periodically revise the spreads applicable to new loans based on their business strategy and prevailing market conditions. Therefore, loans availed by the same borrower at different times may have different interest rates, even if they are linked to the same repo rate,” said Adhil Shetty, CEO, BankBazaar.

For example, if a borrower took one home loan in 2022 and another in 2026, the bank may have revised its pricing policy between these periods. Consequently, the two loans may carry different spreads, leading to different interest rates despite being linked to the same external benchmark.

Credit score is not the only factor

While a good credit score helps borrowers qualify for better loan terms, it is only one of several parameters considered by lenders.

“A repo-linked loan’s final rate is not determined solely by ‘repo rate plus credit score’. Banks build the spread from several product-specific and borrower-specific inputs, and these can differ across loans from the same lender,” said Sarika Grover, Co-founder, LoansJagat.

Banks also evaluate income stability, repayment capacity, existing debt obligations, the property’s loan-to-value ratio and their own lending policies before deciding the final interest rate.

Therefore, borrowers should not expect all repo-linked home loans to carry identical interest rates merely because they have the same credit score and are linked to the same benchmark. The final interest rate is a combination of the repo rate and the lender-determined spread, which can legitimately vary from one home loan to another.

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