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    MCLR vs EBLR: how a repo rate change reaches your EMI

    MCLR vs EBLR is usually explained as a question of which rate is lower. The more useful question is which clock your loan runs on. The repo rate does not set your EMI; it is one input to one of two formulas, and the formula your sanction letter names decides whether an RBI cut reaches you next month or a year from now. On an illustrative ₹40 lakh home loan with 20 years left, a 25 basis point cut is worth ₹630 a month. Waiting a year for it costs ₹9,910 in interest during the wait, and up to ₹46,001 over the life of the loan once you count what that delay does to the end date.

    The second thing most borrowers miss is that a cut rarely shows up as a smaller EMI. Banks commonly keep the instalment where it was and shorten the tenure instead, so someone watching the monthly debit concludes that the cut never arrived, when it did, as ten fewer EMIs at the far end of the loan.

    This page is for floating-rate borrowers: home loans, loans against property, and the car and education loans that float. Most personal loans in India are fixed-rate, and for those a repo change does nothing to an existing loan. Below: how each benchmark is built, what the delay costs, EMI or tenure, and when switching an old MCLR loan pays for its fee.

    MCLR vs EBLR: how a floating rate is built

    The technique

    Benchmark plus spread

    Every floating rate is two numbers added together: a benchmark that moves, and a spread that mostly does not. Borrowers compare the final rate and ignore the split, but the split decides everything that happens after sanction: which events move your rate, how often, and whether the lender can change the part it controls.

    An EBLR loan starts from an external number the bank does not set, most often the RBI repo rate. The bank adds its own mark-up to make its external benchmark lending rate, then adds a spread for you, set by your credit profile. An MCLR loan starts from a number the bank computes itself: its marginal cost of funds based lending rate, driven mainly by what it pays on new deposits and borrowings, for a chosen tenor, usually one year. Your spread sits on top.

    The two loans below both charge 8.5 percent today. They will not after the next repo decision.

    EBLR-linked loanMCLR-linked loan
    BenchmarkRBI repo rate, 5.5%Bank's one-year MCLR, 8.2%
    Bank's mark-up2.65%, making an EBLR of 8.15%Inside the MCLR
    Your spread0.35%0.3%
    Your rate8.5%8.5%
    What moves itAn RBI repo decisionThe bank's cost of deposits and borrowing
    When it movesAt the reset, at least once in three monthsOn your reset date, often every 6 or 12 months
    All rates illustrative, chosen so both loans start at 8.5 percent. The EBLR loan sits 3 percentage points over repo in total. Your own benchmark, mark-up and spread are in your sanction letter or Key Facts Statement.
    • The EBLR loan passes a repo change through almost mechanically: the benchmark is the repo rate, so a 0.25 percentage point cut becomes a 0.25 point cut at the next reset
    • The MCLR loan has two delays stacked. The MCLR itself moves only as fast as the bank's deposit costs reprice, and your loan picks up whatever MCLR is on the reset date, not the day it changes
    • Neither is cheaper by design. In a falling cycle the fast clock helps you; in a rising one it hurts you, by exactly as much and just as quickly

    What is EBLR? What RBI's circular requires

    RBI's circular on external benchmark based lending, dated 4 September 2019 and published at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11677&Mode=0, requires that all new floating-rate personal or retail loans extended by banks from 1 October 2019, housing and auto loans included, be benchmarked to one of four things: the RBI policy repo rate, the three-month or six-month Treasury Bill yield published by Financial Benchmarks India, or another benchmark rate published by it. The rate must be reset at least once in three months. That is the whole reason EBLR transmits faster: the reset interval has a legal ceiling.

    The same circular limits what the bank can do with your spread. The credit risk premium can change only when your credit assessment changes substantially, as agreed in the loan contract; other components of the spread, such as operating cost, can be altered once in three years. A bank cannot quietly absorb a repo cut by raising your spread the following week.

    MCLR loans are governed by the Master Direction on interest rate on advances, first issued in 2016, at https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=10295&Mode=0. It requires banks to publish MCLR for overnight, one-month, three-month, six-month and one-year tenors, and says the reset periodicity of a floating loan shall be one year or lower and shall correspond to the tenor of the MCLR it is linked to. A loan on one-year MCLR resets once a year.

    • The circular binds banks. A home loan from a housing finance company is usually priced off that lender's own reference rate, which this circular does not govern, so check how and when your lender resets it
    • A loan linked to a Treasury Bill yield is an EBLR loan that does not follow the repo rate directly. It follows market yields, which usually move with repo but not by the same amount or on the same day

    How repo rate affects loan EMI, in rupees

    The technique

    A quarter point is worth about ₹630 a month on ₹40 lakh

    People hear '25 basis points' and assume it is too small to matter, or hear 'rate cut' and expect a visible drop. Both miss the arithmetic: on a large, long loan the monthly change is modest, but it applies to 240 instalments, so the lifetime figure is large.

    Here is the same ₹40 lakh balance with 240 months left, repriced at the rates a few repo moves would produce, with the tenure held fixed so the whole change lands in the EMI.

    Loan rateEMIChange vs 8.5%Interest over 240 months
    7.75%₹32,838−₹1,875₹38,81,106
    8%₹33,458−₹1,255₹40,29,825
    8.25%₹34,083−₹630₹41,79,830
    8.5%₹34,713—₹43,31,103
    8.75%₹35,348+₹635₹44,83,623
    9%₹35,989+₹1,276₹46,37,369
    9.5%₹37,285+₹2,572₹49,48,459
    Reducing-balance EMI on ₹40,00,000 over 240 months, EMI recalculated at each rate. Illustrative. On an EBLR loan a repo change moves the loan rate by the same amount at the next reset; on an MCLR loan it moves only as far as the MCLR does.
    • Each quarter point is worth about ₹15.76 a month per lakh borrowed at this tenure. Multiply by your outstanding balance in lakh to get your own figure, then check it against a proper EMI calculation
    • At 8.5 percent, ₹28,333 of the first ₹34,713 EMI is interest, 81.6 percent of it. That is why a rate change moves the lifetime cost so much more than the monthly figure suggests: most of what you pay early in a long loan is the rate
    • The same table read downwards is a hike. A full percentage point of repo increases on an EBLR loan adds ₹2,572 to this EMI, or, if the bank holds the EMI, years to the tenure, worked two sections below

    A repo rate cut on EBLR vs MCLR: the delay

    The technique

    Every month of delay is interest on the full balance

    Borrowers treat transmission speed as patience: the cut will come. Until it does, you pay the old rate on the whole balance, and on a loan where the bank holds the EMI, that overpayment is not recovered later. It is added to the principal you repay last.

    Suppose RBI cuts the repo rate by 25 basis points and both illustrative loans eventually get the full cut, to 8.25 percent. On the EBLR loan, the cut arrives at the next reset: often the following month, and never more than three months later. On the MCLR loan it arrives on your reset date, which could be next month or up to a year away, and only if the bank's MCLR has come down by then. A borrower whose annual reset has just passed waits roughly a year.

    During the wait you pay 0.25 percentage points too much on ₹40 lakh: ₹833 in the first month, slightly less after. The last two columns price the delay over the whole loan.

    Wait for the cutExtra interest during the waitLifetime cost, EMI reducedLifetime cost, EMI held
    1 month (EBLR, prompt reset)₹833₹1,044₹4,001
    3 months (EBLR, quarterly reset)₹2,496₹3,127₹11,904
    6 months (MCLR)₹4,980₹6,237₹23,510
    12 months (MCLR, reset just passed)₹9,910₹12,401₹46,001
    ₹40,00,000, 240 months left, 8.5 percent falling to 8.25 percent after the wait. 'EMI reduced' recalculates the EMI over the original end date; 'EMI held' keeps ₹34,713 and lets the loan finish early. Lifetime cost is total interest compared with the cut applying from the first month. Illustrative.
    • The EMI-held column is roughly four times the wait itself because the ₹9,910 you overpaid during a year's wait is principal you did not repay. It stays borrowed at 8.25 percent until the very last instalment, and the loan finishes a month later than it would have
    • The gap between a quarterly EBLR reset and a year-long MCLR wait is ₹7,414 during the wait for one cut. In an easing cycle of several cuts, each one adds its own delay
    • The larger risk on MCLR is not the wait but a partial pass-through. If the bank's one-year MCLR falls by only 0.15 percentage points after the year, the loan keeps paying 0.1 above where an EBLR loan would sit, and the lifetime cost against an immediate full cut rises to ₹67,812 with the EMI reduced, or ₹1,70,721 with it held

    Lower EMI or shorter tenure after a rate change

    The technique

    The default is to hold the EMI

    When a floating rate changes, lenders commonly keep the instalment and move the end date, because it needs no new mandate and keeps the monthly debit stable. That is generous on a cut and dangerous on a hike, and most borrowers never look at the number of EMIs left, which is where the whole change went.

    RBI's circular of 18 August 2023 on reset of floating interest rates on EMI-based loans to individuals, at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12529&Mode=0, requires lenders to explain at sanction how a benchmark change could move the EMI, the tenor, or both. At a reset, borrowers must be offered a higher EMI, a longer tenor, or a combination, and the option to prepay at any point; lenders may also offer a switch to fixed under their board policy. Tenor elongation must not cause negative amortisation, and each quarter lenders must share a statement showing principal and interest recovered, the EMI, the EMIs left and the annualised rate.

    So the choice is yours to make, but only if you make it. Here is what each choice does on the ₹40 lakh loan.

    Rate changeHold the EMI: new tenureInterest vs no changeHold the tenure: EMI changeInterest vs no change
    Cut 0.25 to 8.25%230 months, 10 fewer−₹3,70,420−₹630−₹1,51,273
    Hike 0.25 to 8.75%253 months, 13 more+₹4,31,659+₹635+₹1,52,520
    Hike 0.5 to 9%268 months, 28 more+₹9,45,517+₹1,276+₹3,06,266
    Hike 1.0 to 9.5%309 months, 69 more+₹23,80,166+₹2,572+₹6,17,356
    ₹40,00,000, 240 months left at 8.5 percent, change applied from the first month. 'Hold the EMI' keeps ₹34,713 and lets the tenure move; 'hold the tenure' recalculates the EMI to the original end date. Illustrative.
    • On a cut, keeping the EMI saves ₹2,19,147 more than taking the lower instalment, because the extra ₹630 a month goes straight to principal. If the old EMI was affordable yesterday, it is affordable after a cut
    • On a hike the asymmetry reverses and is worse. A quarter point absorbed into tenure costs ₹4,31,659 over the life of the loan; the same quarter point paid as ₹635 more a month costs ₹1,52,520. If you can pay the higher EMI, ask for it
    • There is a ceiling to holding the EMI. At about 10.41 percent, 1.91 percentage points above today's rate, ₹34,713 no longer covers the monthly interest on ₹40 lakh. Before that point the lender has to raise the EMI

    Switching from MCLR to EBLR: when it pays

    The technique

    Break-even months = fee ÷ monthly saving

    Switching is sold as a way to get faster cuts. That is only half of it. What the switch buys for certain is the difference between your old rate and your new one, if there is one. Speed is a bet on the direction of the next few repo decisions, and it pays out in both directions.

    Under RBI's 2019 circular, a borrower on a floating loan who is eligible to prepay without charges can move to an external benchmark without any charges or fees except reasonable administrative or legal costs; other existing borrowers can move at mutually acceptable terms. In practice banks price the conversion themselves, and the new spread they offer is the part to read carefully. Two illustrative fees: a flat ₹10,000, which is ₹11,800 with 18 percent GST, and 0.5 percent of the balance, ₹23,600 with GST on ₹40 lakh.

    CaseOld rate to newMonthly EMI savingBreak-even, ₹11,800 feeBreak-even, 0.5% fee
    A: ₹40 lakh, 240 months9.25% to 8.5%₹1,9227 months13 months
    B: ₹40 lakh, 240 months8.75% to 8.5%₹63519 months38 months
    C: ₹8 lakh, 36 months8.75% to 8.5%₹93128 months, never51 months, never
    D: ₹40 lakh, 240 months8.5% to 8.5%₹0Depends on the next repo movesDepends on the next repo moves
    EMI recalculated over the months left; break-even is the fee divided by the monthly saving, rounded up. Case C's 0.5 percent fee is ₹4,720 with GST. Rates and fees illustrative; ask your bank for its conversion charge and the spread on offer.
    • Case A is the one that pays. An old MCLR loan sitting 0.75 percentage points above what the same bank charges new EBLR borrowers saves ₹4,49,419 after the flat fee with the EMI reduced, or far more if the EMI is held and the loan finishes 29 months early
    • Case B pays slowly: ₹1,40,720 net of the flat fee, but only if you keep the loan past month 19. Selling the house or moving the loan within two years undoes it
    • Case C does not pay at any fee. With ₹8 lakh and three years left, a quarter point saves ₹3,340 in total, less than either fee. Short, small balances should stay where they are
    • Case D, a switch at the same rate, is purely a bet on timing. Against a year-long MCLR wait, a quarterly EBLR reset gains ₹34,097 over the loan per 25 basis point cut with the EMI held, so one cut repays the ₹11,800 fee. It also loses ₹43,590 per 25 basis point hike, because the higher rate arrives nine months sooner
    • If your own bank will not offer a lower spread, the alternative is moving the loan to another lender. The RBI prepayment charges rule 2026 page covers when a floating loan to an individual can be closed without a foreclosure charge

    Why the repo rate and EMI moved apart: checks

    If your EMI did not fall after a repo cut, the reason is in documents you already hold: the sanction letter, the Key Facts Statement, and the quarterly statement the 2023 circular requires. Fixed versus floating itself is covered on the types of interest rates page; this page assumes you already know your loan floats.

    • Which benchmark: the sanction letter names it. Repo-linked EBLR, a Treasury Bill yield, one-year MCLR, base rate, or a housing finance company's own reference rate each move on a different schedule
    • When the reset falls: for MCLR, the reset date and periodicity are in the loan terms, tied to either the disbursement date or the MCLR review date. A cut announced the week after your annual reset reaches you almost a year later
    • Whether it already arrived as tenure: compare the EMIs left on two quarterly statements. If the count fell faster than one a month, the cut was passed through and taken as a shorter loan
    • What the spread is: your rate minus the benchmark. If it is well above what the same bank quotes new borrowers with your profile, the benchmark is not your problem; the spread is, and that is what a conversion or transfer addresses
    • Whether the loan floats at all: most personal loans are fixed-rate, and a repo cut does nothing to a fixed loan already running. For those, the question is whether the rate you signed is still a fair price, which the am I overpaying on my loan page works through

    How Unyfy helps with a floating-rate loan

    The decision this page ends in is whether your loan is priced above what you would be offered today, and whether moving is worth the fee. Unyfy flags loans priced above what the same borrower would be offered today and says whether switching is worth it after the fee, and it computes a blended rate across all your loans and cards. On Pro, its Fixed Expenses screen predicts what the coming month is already committed to, EMIs included, with what is paid and what is left so far this month.

    What you see is each EMI named from the lender on the debit with its amount, and, for a loan it flags as overpriced, whether switching is worth it once the fee is taken off. Take your benchmark, spread and reset date from your sanction letter and quarterly statement, and set them beside that answer. It reads bank and card transaction emails and, on Android, transactional SMS, with no manual entry. It never asks for your bank password or UPI PIN, and every payment is one you authorise. Install Unyfy on Android, or use the web app at app.unyfy.co.in on an iPhone.

    A floating rate is a benchmark plus a spread, and the benchmark decides the clock. On EBLR a repo cut reaches the loan within three months; on MCLR it waits for a reset date that can be a year away, and may arrive smaller. On ₹40 lakh with 20 years left, a quarter point is ₹630 a month, a year's delay costs up to ₹46,001 over the loan, and taking the cut as a shorter tenure saves ₹3,70,420 against ₹1,51,273 as a lower EMI. Switching from MCLR pays when the new rate is lower and the loan is long.

    Informational page, not financial advice. The loans, benchmarks, spreads, rates and fees on this page are illustrative. Benchmarks, reset dates, conversion charges and the choice between EMI and tenure are set by your loan agreement and your lender's policy; your sanction letter governs, not this page.

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