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The full form of MCLR is Marginal Cost of Funding-based Lending Rate. This is a type of lending rate which is charged by banks. It is a minimum interest rate at which a bank lends, below which, the bank is not allowed to lend. MCLR was established in 2016 by the RBI as a replacement to the old system of Base Rate of interest on loans. With the establishment of the MCLR system, all previous base rate linked loans and credit exposures are required to migrate to MCLR. The RBI has set up a facility to link the base rate for loans given by banks to the MCLR system starting 1st of April, 2018. This will benefit borrowers who have borrowed on base rate. MCLR is derived from the following factors:
A CIBIL score is a credit score ranging from 300 to 900 and is generated by TransUnion CIBIL. This score is a clear indicator of an individual's creditworthiness, that is, their capacity to repay borrowed credit. Almost all banks and credit lending institutions check the credit score of an individual before giving a new loan or a credit card. Basically, a credit score determines if you are a good borrower or not. Your credit score is highly depended on your repayment credit history and timely payments of credit card bills and equated monthly installments.
There is no such specific or direct relation between MCLR or CIBIL Score as your CIBIL score simply indicates if you are eligible for an MCLR based loan at a specific rate. If your CIBIL score is high, you do not need to worry about loan rejection. But if you have a low cibil score, banks will most likely reject the loan or charge a higher rate of interest. Therefore, it is essential that you maintain a higher CIBIL score in case you seek a loan based on the MCLR system in the near future.
What is Repo Rate?
Repo Rate is the rate at which commercial banks borrow money from the Reserve Bank of India in case they run out of funds.
What are basis points?
A basis point is a common unit of measurement of interest rates. One basis point is equivalent to 0.01% and it is used to indicate a change in a financial instrument such as the rate of interest of a loan. The MCLR system in India has successfully replaced the traditional system of base rate of interest on loans. The base rate is built upon the basis points and it represented as a percentage.
What is the MCLR for SBI Home Loan?
SBI has recently raised its 1-year MCLR to 8.15% from 7.95% for FY 2018. SBI has a spread of 40 basis points over the MCLR for normal borrowers while it stands at 35 basis points over the MCLR for women borrowers.