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What is MCLR Rate and How its Effects on Loans

  • Highlights:

  • Marginal Costs Lending Rate is the MCLR full form in banking

  • MCLR is only applicable to banks and doesn’t affect NBFCs

  • Repo rate changes have a direct impact on MCLR-linked loans

  • Borrow cost-effectively with a Bajaj Finserv Personal Loan

When it comes to borrowing via financial instruments like the personal loan, you’re generally advised to borrow affordably. In most cases, this means picking the offering with the lowest interest rate, but sometimes, it also means accounting for the different factors that affect the interest rate. Here, things like the base rate and MCLR come into play and smart borrowers know how to factor these parameters into their decision. However, if you’re unaware of these terms, you may have questions such as, ‘What is MCLR?’, ‘What is base rate?’ and ‘What is the difference between base rate and MCLR?’

Knowing the answers to these and other related queries like, ‘What is MCLR rates?’ and ‘What effect does the MCLR rate have on loans?’ teaches you key things about MCLR that you must be aware of. This is especially true if you’re looking to borrow cost-effectively and are willing to go the extra mile by understanding the various factors in play. To help you get started in the right direction, consider these pointers explaining the MCLR meaning, the MCLR guidelines RBI has put forth, and the effect of the MCLR lending rate on loans.

Additional Reading: How to Log In to Bajaj Experia Customer Portal?

The Marginal Cost of funds-based Lending Rate, which is the MCLR full form, helps financial institutions like banks define the minimum best personal loan interest rates. Banks cannot lend at a rate lower than the MCLR without RBI authorization. MCLR is an internal benchmark, linked to the repo rate, and based on the:

  • Tenor premium

  • Marginal cost of funds

  • Negative carry on account of CRR

  • Operating Cost incurred

The RBI first implemented the MCLR regime on 1 April, 2016, and MCLR was introduced as a modification to the older base rate system. With the newer system, every time the repo rate changes, banks are required to reflect this change in all MCLR-linked loans they offer. In the older regime, financial institutions were slow to bring about these changes and you as a borrower ended up losing out as a result.

Additional Read: Benefits of Bajaj Finserv Personal Loan

How Does MCLR in Banking Work?

The most important point to note is that the MCLR lending rate is only applicable to loans issued by banks and doesn’t affect NBFCs. MCLR in banking works based on 2 important parameters: Reset clause and spread.

  • Reset clause
    When a loan is sanctioned to you, the prevailing MCLR on that date is applicable to your loan. Further, the lender will allot specific reset dates on the loan. On these dates, the interest rate on your loan will change according to the current MCLR. In most cases, the reset date is usually 1 year from the date of issuance, but it may vary with each lender.

  • Spread
    The spread is basically an additional margin over the MCLR set by the lender. The spread can go up to 25 basis points and lenders are free to set the spread as per their discretion.


What is Current MCLR Rate?

As per the MCLR guidelines RBI has put forth, banks across the country are required to publish their respective MCLR across various tenors on a monthly basis. The range of tenors or maturities that the MCLR is declared for may include:

  • One year

  • Six months

  • Three months

  • One month

  • Overnight

Why is the MCLR Lending Rate Important?

The MCLR lending rate is important because it sets out to achieve the following 4 objectives.

  • Improve the rate at which RBI policy rates get transmitted to financial instruments

  • Promote transparency in the system used by banks to set interest rates

  • Provide banks with an edge in order to boost their contribution to the economic growth of India

  • Bring about fairness in interest rates for both borrowers and banks

Additional Read: Digital Loan For Financial Needs

How Does MCLR Affect Loans?

The MCLR regime works towards meeting the above-mentioned objectives. As such, its effects are felt widely across the market, with benefits for both lenders and borrowers. For instance, banks are now prompt at reflecting RBI rate cuts in their respective offerings. In the older regime, this wasn’t the case and, often, the borrowers missed out.

Secondly, under the MCLR regime, an MCLR-linked loan can’t have its spread changed unless the borrower’s credit profile changes as well. In the previous systems, certain lenders would offer low interest rate personal loans with a low spread and then increase the spread unfairly over the course of the tenor.

These pointers clearly explain the MCLR meaning and the relevance of MCLR in banking terms. Understanding this information enables you to read the market more thoroughly and make comparisons more astutely when it comes to loan offerings. Only now can you realistically pick instruments that offer true value in terms of affordability. At this stage the Bajaj Finserv Personal Loan is sure to stand out for its attractive interest rate and myriad loan features.

With this offering, you can get approved for a sanction of up to Rs.25 lakh. Here, you can opt for a flexible tenor that ranges up to 60 months, to make repayment easy to manage. Further, with a financial profile in good standing, you enjoy quick loan processing, instant approval, and full disbursal of the sanction within 24 hours. All of these features are available to you at no hidden costs, as Bajaj Finserv guarantees complete transparency. To take advantage of these loan perks and borrow in a hassle-free manner, be sure to check your pre-approved offer today!

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The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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