What happens to the interest rate when MCLR changes?

When the MCLR (Marginal Cost of Funds Based Lending Rate) changes, the interest rate on floating rate loans linked to MCLR also changes. The interest rate is typically reset at predetermined intervals, such as every three months or one year, depending on the loan agreement.

When the MCLR increases, the interest rate on the loan also increases, resulting in higher EMIs (Equated Monthly Installments) for borrowers. Conversely, when the MCLR decreases, the interest rate on the loan decreases, leading to lower EMIs.

It's important to note that the extent to which the interest rate changes may vary based on the loan agreement and the specific terms set by the lending institution. Banks may have a spread or markup over the MCLR, which determines the final interest rate charged to the borrower.

Therefore, borrowers with floating rate loans should be aware that their interest rates and subsequent EMIs can fluctuate with changes in the MCLR. It's advisable to stay updated with the MCLR revisions announced by the lending institution and understand the potential impact on their loan repayment obligations.