How does MCLR impact the overall cost of borrowing?

MCLR (Marginal Cost of Funds Based Lending Rate) impacts the overall cost of borrowing by influencing the interest rate charged on loans. The MCLR serves as the benchmark rate for determining the lending rates of banks.

When a borrower takes a loan linked to the MCLR, the interest rate on the loan is typically calculated as MCLR plus a spread or margin. The spread is determined by the bank based on factors such as the borrower's creditworthiness, loan tenure, and other relevant parameters.

If the MCLR increases, the interest rate on the loan will also increase, resulting in a higher cost of borrowing for the borrower. Conversely, if the MCLR decreases, the interest rate on the loan will decrease, leading to a lower cost of borrowing.

It's important to note that the impact of MCLR on the overall cost of borrowing can vary depending on the loan amount, loan tenure, and the specific terms and conditions of the loan. Borrowers should carefully consider the interest rate, spread, and other associated charges while evaluating the cost of borrowing. It's advisable to compare loan offers from different banks and negotiate favorable terms to minimize the overall cost of borrowing.