The State Bank of India (SBI) has revealed its latest marginal cost of funds-based lending rates (MCLR) for the period between January 15 and February 15, 2025. These rates, which will apply to loans effective from January 15, 2024, will impact interest rates on home loans, personal loans, and car loans. The bank has opted to keep the MCLR rates unchanged across all loan tenures, providing clarity to borrowers about their loan repayments.
SBI’s MCLR for various loan tenures, effective from January 15, 2024, are as follows:
Overnight MCLR: 8.20%
One-Month MCLR: 8.20%
Three-Month MCLR: 8.55%
Six-Month MCLR: 8.90%
One-Year MCLR: 9%
Two-Year MCLR: 9.05%
Three-Year MCLR: 9.10%
These revised MCLR rates will impact the interest rates applied to various loans, including home loans, car loans, and personal loans, which are linked to the MCLR system.
The MCLR system, introduced by the Reserve Bank of India (RBI) in 2016, was designed to bring more transparency to lending rates. It reflects the cost of funds for banks, providing a more accurate representation of the interest rates they charge borrowers. By allowing banks to revise their rates more frequently, MCLR enables lenders to respond to changing market conditions.
The MCLR is the base rate used by banks to determine the interest charged on loans. Loans that are linked to MCLR will have their interest rates adjusted based on the prevailing MCLR rate, which is reset periodically according to the tenure of the loan.
When the MCLR is revised, borrowers who have loans tied to this rate will experience changes in their monthly instalments (EMIs). This means that the EMI payments for home loans, personal loans, and car loans could either increase or decrease depending on whether the new MCLR rate is higher or lower than the previous one.
For example, with the latest revision, customers who have loans tied to the one-year MCLR of 9% might experience a slight increase in their EMIs. Similarly, the three-month MCLR of 8.55% and six-month MCLR of 8.90% can also influence borrowers’ monthly payments depending on the reset period of their respective loans.
Although MCLR provides the benchmark for loan interest rates, the final lending rate offered to an individual borrower will be influenced by a variety of factors. These factors include:
Income Level: A borrower’s income helps the bank determine their ability to repay the loan.
CIBIL Score: A higher credit score typically results in a lower interest rate, as the borrower is deemed less risky.
Loan Tenure: The length of the loan repayment period may also play a role in determining the interest rate.
Loan Type: The type of loan being taken (home, personal, car loan) can also affect the interest rate assigned to the borrower.
SBI evaluates these factors to determine the final interest rate for each loan applicant. The more favorable the applicant’s financial profile, the better the rate they are likely to receive.
For borrowers with home loans or car loans, the MCLR changes could lead to alterations in their EMI amounts. As loans linked to MCLR are subject to rate revisions at regular intervals, customers may notice their payments increase if the MCLR is raised.
For instance, home loan borrowers linked to the one-year MCLR at 9% will see their EMIs rise, especially if they were initially benefiting from lower rates when the MCLR was lower. Car loan customers can expect similar adjustments in their monthly payments, depending on the MCLR applicable to their loans.
SBI’s decision to keep the MCLR rates unchanged for January 2025 provides stability to borrowers during the new year. While borrowers may see changes in their EMI amounts based on the MCLR revisions, the system’s transparency ensures that they are always informed about how their loans will be affected. With the MCLR system in place, borrowers can continue to track and understand the changes in their loan payments, contributing to better financial planning.