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What is MCLR?

Previously, banks decided their lending rate as per the Base Rate decided by the Reserve Bank of India (RBI). In recent years, however, MCLR has emerged as the new standard. It acts as the minimum interest rate that banks can charge and below which, they are not allowed to charge. Starting April 1, 2018, the RBI initiated its facility for linking old loans’ base rates to the MCLR system to assist borrowers who had availed credit under the previous Base Rate system.


The Marginal Cost of Funding-based Lending Rate is derived from several factors. Read on below to learn what these are. 

  1. The marginal cost of the funds availed

  2. The premium applicable on the repayment tenure, which helps pay off long-term loans’ risks

  3. Operating costs

  4. The cost of the Cash Reserve Ratio (CRR)


While the RBI’s Base Rate previously depended on the minimum rate of return and the average cost of funds, the MCLR more closely reflects the Repo Rate set by RBI, which is the rate at which RBI lends money to commercial banks. As a result, changes in Repo Rate result in changes to the MCLR as well. If the Repo Rate is low, banks will be able to offer credit to borrowers with lower interest rates as well.


Post March 2018, RBI mandated that all lending should happen as per the MCLR. The MCLR applicable on a loan will remain the same for either a 1-year period or for a lower tenure since banks can choose to opt for an MCLR that remains the same across a year or 6 months. However, banks can also opt to include a slight interest percentage over the MCLR on any of the loans they offer. As a result of these changes, loan interest rates are now reset annually as per the MCLR benchmark for loans that either have a floating interest rate or a fixed interest rate with a repayment tenure shorter than 3 years.

Link Between MCLR and CIBIL Score

The CIBIL score and MCLR both directly impact the possibility of a borrower securing a loan and the interest rate at which they are able to secure a loan. Even through Bajaj Markets, you require a credit score of at least 700 in order to avail a personal loan of up to Rs. 50 Lakhs. Since the loan offers several benefits, including its flexible repayment tenure and low interest rates, it is in your best interest to ensure that your credit score remains above 700.


While there is no direct relationship between a CIBIL score and MCLR, it is important to understand how they both impact your lending capacity. If your CIBIL score is higher than 750, you need never worry about getting your loan application rejected. However, if your CIBIL score is low, you will be charged extremely high interest rates in order to avail a loan.


MCLR determines the lowest interest rate chargeable by banks on loans and other forms of credit since floating interest rates are determined as per MCLR. However, in order to ensure that you can avail these low interest rates, you are required to maintain a high CIBIL score.

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