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23 DECEMBER, 2022
MCLR v/s RLLR - Difference Between These Two Home Loan Interest Rate Terms
When you decide to buy a home of your own, borrowing a home loan is the best way to make this dream a reality. Home loan lenders can offer you a home loan with either the Repo Linked Lending Rate (RLLR) or the Marginal Cost of Fund Based Lending Rate (MCLR). You must know everything about these to understand your home loan better.
What is Repo Linked Loan Rate (RLLR)?
The RLLR full form is Repo Linked Loan Rate and as the name suggests, the RLLR rate is linked to the Repo rate set by RBI and is revised from time to time. All the banks have different RLLR RATE.
The RLLR full form tells you what it actually is- a loan rate linked to the repo rate. It depends on many factors, for example, the loan amount, risk groups, loan-to-value, etc. When lending is done based on the RLLR interest rate the home loan interest rate moves up and down based on the change in the repo rate.
What is the Marginal Cost of a Fund-Based Lending Rate (MCLR)?
MCLR means the rate below which a bank cannot charge its customers. It is set by the bank adhering to the guidelines set by the RBI for it.
The MCLR full form- MCLR full form in banking is suggestive of its function. It is the lowest rate at which Banks can lend funds. MCLR rate means a reference rate for banks to decide the interest rate they can charge on loans.
MCLR v/s RLLR- What is the Difference?
Here are some key differences between MCLR and RLLR. that will help you understand what is MCLR and RLLR
Internal mechanism of Bank
External(RBI Repo Rate)
Varies from Bank to Bank but is usually 6-12 months
In RLLR: It’s an external benchmark linked to RBI’s Repo Linked Lending Rate. If there’s a change in the repo rate by RBI, it would also affect your home loan interest rate.
In MCLR: It’s an internal benchmarking where the bank sets interest rate considering its cost of funds. The repo rate is not the only factor affecting the interest rate, but factors like banking system liquidity, low-cost deposits, etc., also affect it.
In RLLR: The reset period in RLLR Rate is three months which means your EMI can be revised every three months. This is beneficial because borrowers can enjoy the repo rate cut through lower EMIs. However, if the repo rates escalate, a similar impact is seen on the EMI payouts as well.
In MCLR: The reset period is usually six months or a year. Hence, banks may choose to revise their interest rates half-yearly or annually. This gives borrowers a good time lag before their EMI changes.
Read a Similar Article: Understanding Interest Rate On Housing Loans
In RLLR: The change in rate cuts by RBI is transferred to the borrowers in a fast and quick manner.
In MCLR: The transmission of the rate cuts is slow, and it usually takes time before the actual benefit is finally transferred to the borrower.
In a nutshell
If you borrow a Repo Rate Linked Home Loan, you can enjoy more transparency and expect to benefit from repo rate reduction quickly. MCLR, on the other hand, is a more stable option if you estimate the repo rate to rise.
We now hope you understand what MCLR means and what is RLLR interest rate and how these two work. At Kotak Mahindra Bank we provide both Repo Rate Linked Home Loan and MCLR loans at affordable interest rates and quick approvals.
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