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What are the benefits of taking a loan linked to MCLR?

Curious about MCLR Rates

What are the benefits of taking a loan linked to MCLR?

Taking a loan linked to the Marginal Cost of Funds Based Lending Rate (MCLR) in India offers several benefits to borrowers. Some of the key benefits include:

1. Transparent and marketdriven rates: MCLR is determined based on the bank's incremental cost of funds, ensuring that the lending rates are aligned with prevailing market conditions. This enhances transparency and reflects changes in interest rate dynamics.

2. Faster transmission of policy rate changes: MCLR is more responsive to changes in the policy rates set by the Reserve Bank of India (RBI). Therefore, when there are reductions in policy rates, borrowers with loans linked to MCLR are likely to benefit from lower interest rates relatively quickly.

3. Lower interest rate risk: MCLRbased loans typically have periodic rate resets (usually every 6 or 12 months), which means that if interest rates decrease, borrowers can avail of the lower rates at the time of the reset. This reduces the risk of being locked into higher interest rates for an extended period.

4. Flexibility of tenure and type of loan: Banks offer MCLRbased loans with various options for tenure and types of loans, such as home loans, personal loans, and business loans. This provides borrowers with flexibility in choosing the loan that suits their needs.

5. Prepayment and foreclosure benefits: MCLRlinked loans often come with prepayment and foreclosure benefits, allowing borrowers to repay the loan partially or in full before the end of the loan tenure without incurring significant penalties.

It is important to note that the specific benefits and terms may vary between banks, and it is advisable to compare offerings from different lenders to make an informed decision based on your requirements.

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