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MCLR: What Does It Mean?
What is MCLR Interest Rate?
How Does MCLR Interest Rate Affect You?
How to Cushion the Effects of MCLR Interest Rate Increase?
The Reserve Bank of India introduced the Marginal Cost of Funds-Based Lending Rate (MCLR) to
curtail the issue of unfair
lending rates being implemented by lenders. The MCLR aims to set the benchmark on the rates
of interest for all types of
This means that the average bank or other financial institution cannot approve loans or
set rates of interest on loans
below the MCLR benchmark. This does not only concern the banks and affiliate financial
institutions but equally involves
the borrowers. What is the MCLR meaning, and what is MCLR interest rate, you ask? Read
on to learn more about the MCLR.
The MCLR simply refers to the minimum lending rates set by banks or affiliate financial
institutions on any type of
loan. The MCLR acts as a replacement for the base rate system. It also specifies the
procedures crucial for determining
the interest rates on loans.
Two of the MCLR’s primary objectives are to:
Considering the banking industry’s relevance to India’s economy, MCLR is a tool to help
portray the image of India’s
financial institutions as a trustworthy resource for accessing credit. The table below
offers some insights into the
difference between the MCLR and the base rate system standards.
From this table, it’s apparent that the MCLR is a better way to regulate bank lending
It is important to note that the MCLR lending rate system only applies to floating
interest rate loans, so it cannot be
implemented in fixed interest loans. Banks and affiliate financial institutions are
mandated to publish their minimum
loan rates for various tenors ranging from daily interest rates to monthly rates like 3
months and 6 months. The rates
may also stretch to a year.
This equips prospective and existing customers with the knowledge necessary for making a
smart loan choice. With the
knowledge of the MCLR, they can adjust to new lending rates when necessary too.
Transferring your Loan to the MCLR
system is a smart move. For individuals that have accessed loans before the MCLR’s
implementation can transfer their
loans to enjoy the new system’s benefits.
It is important to note that an increase in MCLR will lead to an increase in your loan
EMI. Just recently, for the first
time since the implementation of MCLR, the RBI increased the REPO interest rates. This
means that the MCLR rates will
rise, forcing financial institutions, banks included, to increase their lending rates.
This may cause increased rates of
interest on loans and the EMIs that accompany the loans.
The increases are inevitable and can not be managed. However, you are not entirely
powerless. Below are steps you can
take to cushion the effects of the MCLR hike.
Banks and financial institutions calculate MCLR rate against the following:
Financial institutions borrow money from several internal sources fixed deposits, current
accounts, amongst other
accounts that are operational in the bank. They also secure funding through equity
returns and so on.
Must Read: Difference Between MCLR and Base Rate
Now that you know what the MCLR is, you can apply for home loans, business loans, and
many more through Bajaj Housing
Finance to enjoy the best MCLR rates and benefits.
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