New Delhi: The State Bank of India (SBI) has increased its marginal cost of lending rate (MCLR) by 10-15 basis points across tenors effective today, November 15. Borrowers with loans linked to MCLR would now have to shell out more to pay EMIs.
The one-month and three-month MCLR have been increased from 7.60 per cent to 7.75 per cent; six-month and one-year MCLR have been hiked from 7.90 per cent to 8.05 per cent; three year MCLR has been hiked from 8.15 per cent to 8.25 per cent; three years MCLR has been hiked from 8.25 per cent to 8.35 per cent.
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WHAT IS MCLR?
The marginal cost of lending rate is the minimum rate at which banks can offer loans to customers. It was introduced by the Reserve Bank of India (RBI) in 2016 to determine the interest rates on various types of loans.
“The MCLR is the benchmark rate of interest followed by banks for lending. This essentially makes it the minimum rate of interest that a bank can lend at, without lowering the rates any further”, Pramod Kathuria, founder and CEO of Easiloan told ET.
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Any change in the MCLR will directly impact the cost of loans as the interest rates go up, the borrowers will automatically have to pay more EMIs. For existsing borrowers, this hike will impact when their individual loan reset date arrives and new borrowers will have to pay higher EMIs if their loans are linked to the MCLR.
According to Bajaj Finserv, two effective strategies to reduce the impact of MCLR rates on EMIs are:
- To increase the loan tenor to reduce the EMIs
- Make part pre-payment to bring down the EMIs
Bajaj Finserv also adds that if your loan has been availed after April 1, 2016, then it’s automatically linked to the MCLR mode. If your loan was taken prior to this date and linked to the base rate regime, you can always switch to the MCLR mode.
