Most borrowers compare loans purely on the headline interest rate and never check what benchmark that rate is actually linked to. This matters more than it seems, since the benchmark determines how quickly, and how completely, an RBI repo rate change actually shows up in your EMI.
MCLR: The Older, Slower-Moving Benchmark
MCLR (Marginal Cost of Funds based Lending Rate) is calculated by each bank based on its own cost of funds, deposits, operating costs, and other internal factors. Banks review and reset their MCLR periodically, commonly every month, but individual loans are typically reset only once a year, on the loan's own reset date, regardless of when RBI changes the repo rate in between. This means an RBI rate cut can take up to a year to actually reach your EMI if you're on an older MCLR-linked loan.
Repo Rate Linked Loans (EBLR): Faster and More Transparent
Since October 2019, RBI has mandated that new floating-rate retail loans (home, auto, and most other retail loans) be linked to an External Benchmark Lending Rate, most commonly the repo rate itself. When RBI changes the repo rate, banks are required to pass through the change to EBLR-linked loans within 3 months, a much faster and more predictable transmission than the old MCLR system.
Side-by-Side Comparison
| Factor | MCLR-Linked | Repo Rate Linked (EBLR) |
|---|---|---|
| Benchmark set by | Individual bank's own cost of funds | RBI's repo rate, external and transparent |
| Reset frequency for your loan | Typically annual | Typically quarterly, within 3 months of an RBI change |
| Transparency | Lower, bank-specific calculation | Higher, directly tied to a published RBI rate |
| New retail loans since Oct 2019 | Not permitted for most new retail loans | Mandatory benchmark for new retail floating loans |
If You Took Your Loan Before October 2019
Older MCLR-linked loans are still valid and running, RBI's mandate applied to new loans going forward, not retroactively. If you're still on an old MCLR-linked loan and rates have fallen since, you may be paying more than someone on an equivalent EBLR loan today. Most banks allow you to switch from MCLR to the repo-linked benchmark for a nominal conversion fee, worth checking if your loan predates the 2019 mandate.
Why This Matters More Than the Headline Rate When Comparing Loans
A loan advertised at 8.5% linked to MCLR and another at 8.5% linked to the repo rate look identical today, but they'll behave very differently the next time RBI moves the repo rate. If rates are falling, the repo-linked loan passes the benefit to you faster. If rates are rising, it also passes the increase to you faster, there's no free lunch, but the speed and transparency of the pass-through is what genuinely differs, not just the starting number.
Frequently Asked Questions
Can I switch my old MCLR loan to a repo rate linked loan?
Yes, most banks allow this switch for a nominal conversion fee, worth doing if your loan predates the October 2019 mandate and you want faster, more transparent rate transmission going forward.
Are all new loans since 2019 repo rate linked?
Most new retail floating-rate loans (home, auto, and similar products) are required to be linked to an external benchmark, most commonly the repo rate, though the exact benchmark can occasionally differ by bank within the permitted external options.
Does a repo-linked loan always mean a lower rate than MCLR?
Not necessarily lower, but more responsive, when RBI cuts rates, an EBLR loan reflects that faster; when RBI raises rates, it also reflects that faster. The benchmark type affects speed and transparency of change, not a guaranteed direction of benefit.
Not sure which benchmark your current loan is linked to? Talk to us, we'll check your loan documents and see if a switch or balance transfer makes sense.
