7 MCLR Facts for Home and Auto Loan Borrowers

Financial markets around the world have been rattled by a rise in prices, the ongoing Covid-19 outbreak, and the conflict in Ukraine. Fuel prices have already risen dramatically, and there are now concerns that interest rates on loans will rise as well.

Are you in the market for a home or a car, whether you're an existing customer or a new one? This information must not be ignored. Banks have recently increased the MCLR (Marginal Cost of Funds Based Lending Rate), and this could mean that loans with floating interest rates will become more expensive. What are the best options for a person in this situation?

• MCLR or an external benchmark will almost certainly be used if you take out a loan with a floating interest rate.

• There is no MCLR for fixed-rate loans.

• The RBI has mandated that retail and MSME loans be linked to an external benchmarking system as of October 1, 2019. However, for corporate and other sorts of loans, it remains an alternative.

• Only loans with fluctuating interest rates are affected by MCLR. It doesn't apply to interest rates that aren't variable.

• Customers can check their bank's MCLR on their own.

• Without RBI approval, banks are unable to make loans below the MCLR.

• There is a direct correlation between an increase in the repo rate and an increase in interest rates for MCLR-linked floating rate loans.

Several well-known lenders have recently raised their MCLR, which indicates that floating-rate home loans and car loans may soon be more expensive. The rising cost of funding has compelled the banks to make this move despite the RBI repo rate being steady.