Why are banks like SBI increasing home loan interest rates, and where can you get a cheaper loan?

State Bank of India (SBI), India’s biggest lender, has revised its home loan rates, increasing the upper band by 25 basis points (bps) effective from August 1, 2025. 

The updated interest rates in SBI for a regular home loan (term loan) stand between 7.50% and 8.70%. These rates will apply to customers based on their credit scores. 

The upper band was previously at 8.45%. This could mean that there’s an upcoming shift in the home loan market in India. 

The SBI’s decision comes after the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.5% in its August Monetary Policy Committee (MPC) meeting.

SBI home loan rates August 2025

• Source: SBI website
• All Home Loans are linked to the External Benchmark Rate (EBLR).  
• Prevailing EBLR = 8.15%  
• Interest rates are based on CIBIL Score

It's important to note that banks don’t decide lending rates singlehandedly. The home loan rates are linked to an external benchmark, which in this case is the External Benchmark Lending Rate (EBLR). The EBLR is tied to a market-linked rate set outside the bank (repo rate). 

Moreover, your home loan rate would be based on your CIBIL score, which decides your creditworthiness. 

An increase in bank loan rates means higher Equated Monthly Installment (EMIs) for customers, which could translate to lower spending power, as it also impacts the repayment burden. Further, the interest burden steadily rises over the long tenure, making it harder for consumers to manage their finances. 

Why are banks increasing loan interest rates?

Union Bank of India also hiked its home loan rates in July 2025. Its interest rates currently start from 7.45% for customers with a CIBIL score of above 800 and 7.6% for those with a CIBIL score of above 750. Many other public banks are also expected to increase their home loan rates in the coming months. 

This is different from expectations, as after the RBI MPC announcements, most believed that banks would also keep the lending rates unchanged. 

In 2025, the RBI has reduced the repo rate by 100 bps, frontloading three repo rate cuts in the MPC meetings throughout the year. In the August meeting, however, the central bank maintained the current rate and neutral monetary policy stance. 

This could mean that the banks are trying to prioritise margins over growth. While banks are expected to pass repo rate cuts to customers, they are finding it hard to keep margins stable. 

In India, a big part of the population relies on fixed deposits (FDs) for their savings and investments. Due to this, lowering FD rates is hard for banks and financial institutions, which could be one of the reasons why banks are opting for higher loan interest rates. 

If other banks also increase their rates in the near future, it might result in a new phase for the home loan market, which is focused more on sustainable returns for banks over cheap credit, as per a Times of India report. 

Where can you get cheaper loans?

Some other banks in India are offering lower interest rates, starting from 7.40%. 

Customers must compare the interest rates offered by banks before taking a loan. Additionally, one must also read the terms and conditions carefully and be aware of all the charges.