Bank cut MCLR rates: home and personal loans EMIs cheaper now

Bank cut MCLR rates: Bank of India has cut its Marginal Cost of Funds Based Lending Rate (MCLR) rates effective July 1, 2025. This move is expected to make EMIs for home and personal loans cheaper for borrowers whose loans are linked to the MCLR.

Impact on EMIs:

For existing borrowers with MCLR-linked loans: The reduction in MCLR will lead to a decrease in their EMIs, but this change will typically reflect only after their next reset date. MCLR-linked loans usually have a reset period of 6 to 12 months.

For new borrowers or those looking to switch: A lower MCLR means new home and personal loans will be available at more attractive interest rates, potentially leading to lower EMIs from the outset.

MCLR vs. RLLR (Repo Linked Lending Rate):

It’s important to note that many new floating-rate loans, especially home loans, are now linked to the External Benchmark Lending Rate (EBLR) or Repo Linked Lending Rate (RLLR), which are directly tied to the RBI’s repo rate. These loans see a much faster transmission of rate cuts compared to MCLR-linked loans.

The Reserve Bank of India (RBI) has recently cut its repo rate, with some reports indicating a cumulative reduction of 100 basis points (1%) since February 2025, bringing the repo rate down to 5.5%. Banks linking their loans to the repo rate have been quicker to pass on these benefits.

While MCLR-linked loans offer more stability in volatile rate environments, RLLR loans are generally more beneficial in a falling interest rate scenario due to faster transmission of rate cuts.

What Borrowers Should Do:

Check your loan’s benchmark: Determine if your home or personal loan is linked to MCLR, RLLR/EBLR, or an older base rate system. This information can be found in your loan sanction letter or by contacting your bank.

Understand your reset date: If your loan is MCLR-linked, the benefit of this rate cut will only apply on your next reset date.

Consider switching: If your loan is still on an older benchmark like MCLR or base rate, you might consider switching to an RLLR-linked loan to benefit from quicker rate transmissions, though this might involve a one-time conversion fee.

Assess impact: Calculate the potential savings on your EMI or the reduction in loan tenure due to the rate cut. You can either reduce your EMI or keep the EMI unchanged to shorten your loan tenure, with the latter often leading to greater overall interest savings.

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