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How does MCLR impact personal loans?

Curious about MCLR Rates

How does MCLR impact personal loans?

MCLR (Marginal Cost of Funds Based Lending Rate) also has an impact on personal loans, although the specific impact may vary depending on the lending practices of individual banks. Here are a few key points to understand:

1. Interest Rate: The MCLR serves as the benchmark rate for determining the interest rate on personal loans. Banks generally add a spread or margin over the MCLR to arrive at the final interest rate for borrowers. As the MCLR changes, it directly affects the interest rate on personal loans. When the MCLR increases, the interest rate on personal loans may also increase, leading to higher borrowing costs for borrowers. Conversely, when the MCLR decreases, the interest rate on personal loans may decrease, resulting in lower borrowing costs.

2. Loan Terms and Conditions: The terms and conditions associated with personal loans, including factors such as loan tenure and processing fees, can be influenced by changes in the MCLR. Lenders may review and adjust their loan offerings based on changes in the MCLR to maintain a competitive position in the market.

3. Loan Eligibility: Changes in the MCLR can impact the loan eligibility of borrowers. An increase in the MCLR, leading to a higher interest rate, may result in higher EMIs and a reduced loan eligibility for borrowers. Conversely, a decrease in the MCLR, resulting in a lower interest rate, may increase the loan eligibility for borrowers as it reduces the burden of EMIs.

It's important for individuals seeking personal loans to monitor the MCLR and understand its impact on the interest rate and overall cost of borrowing. Keep in mind that personal loans are typically unsecured, meaning they don't require collateral. As a result, the interest rates on personal loans tend to be higher compared to secured loans such as home loans or vehicle loans.

When considering a personal loan, it's advisable to compare offers from different lenders, take into account factors beyond the MCLR, such as processing fees, prepayment penalties, and customer service, and carefully assess your repayment capacity before making a borrowing decision.

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