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What is the impact of MCLR Hike on Personal Loan rates?

Personal loans are an important financial funding tool that people make use of when they need money to accommodate their lifestyle habits and their salary may or may not be enough to cover the expenses. The reasons can be personal – be it getting married or going on vacation or just getting different home appliances for your new home. There are several lenders and banks out there that disburse personal loan money as per our convenience and loan repayment capacity. Apart from the basic elements like the loan tenure, the interest rate and the loan amount, there is one concept in it that may require your attention so read on to know more. 

When we talk about personal loans, the most crucial factor that comes to mind is the interest rate. It is the main focus of all loan-related discussions and decisions. One concept that plays a vital role in determining these rates is the Marginal Cost of Funds-based Lending Rate (MCLR). Let’s delve into understanding MCLR and its impact on personal loan rates.

Understanding MCLR and Personal Loan Rates:

MCLR refers to the minimum interest rate below which a bank cannot lend, except in some cases allowed by the RBI. It serves as an internal benchmark or reference rate for the bank. When the MCLR rate increases, it impacts all loan rates, including personal loans, making them more expensive.

An increase in the MCLR rate means higher personal loan interest rates. Since the personal loan rates are directly linked to the MCLR, an increase in the latter would subsequently cause a hike in the former. This means that if we opt for a personal loan after an MCLR hike, we are likely to pay a higher EMI.

Benefits of Airtel Personal Loans:

While discussing personal loans, it’s worth mentioning the benefits of Airtel Personal Loans. With Airtel  Finance, we can choose our loan amount, tenure, and EMI as per our needs. The process is quick and entirely cashless, with immediate money transfer to our account. All we need is the Airtel Thanks app to get it done.

Also Read: Documents for Personal Loan

How a Hike in MCLR Influences Your EMI:

When the MCLR goes up, the personal loan interest rates also rise. This leads to an increase in the Equated Monthly Instalments (EMIs) that we pay towards the loan. The total outflow of money over the loan tenure increases, making the loan more expensive.

Banks play a crucial role in determining personal loan rates. While they reference the MCLR, they also consider factors like credit risk, tenure, and operational costs. This is why personal loan rates vary from bank to bank.

Potential Benefits of MCLR Hike for Borrowers:

While might seem like a MCLR hike is bad news, it can have potential benefits. If we have invested in fixed deposits, a MCLR hike can mean higher returns on our investments. This can help offset the increased cost of loans.

Downsides of Increased MCLR on Personal Loans:

The major downside of a MCLR hike is the increased cost of borrowing. Higher personal loan rates mean higher EMIs and a higher total repayment amount. This can strain our finances, especially if the hike is significant.

Ways to Navigate through MCLR Hike:

There are ways to navigate through a MCLR hike. We can consider fixed-rate loans, where the interest rate remains constant regardless of MCLR changes. It’s also wise to maintain a good credit score, as it can help negotiate better loan terms.

Also Read: What is the maximum and minimum tenure for a personal loan?

The Impact of MCLR Hike on Pre-existingPersonal Loans:

The impact of MCLR hike on pre-existing personal loans depends on the type of interest rate we have chosen. If it’s a floating rate, the EMI amount will increase with a hike in MCLR. 

Forecasting Future Personal Loan Rates Based on MCLR:

While predicting future personal loan rates based on MCLR isn’t an exact science, a rising MCLR trend suggests that personal loan rates may also increase in the future. 

Concluding Thoughts

A MCLR hike has mixed implications. On one hand, it means higher personal loan rates, making borrowing expensive. On the other hand, it can bring higher returns on certain investments. Ultimately, understanding MCLR and its impact on personal loan rates can help us make informed financial decisions. 

We hope this blog has shed some light on the somewhat complex subject of MCLR and its bearing on personal loan rates. Remember, being informed is the first step towards better financial management.

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