Disclaimer & Affiliate disclosure: The information provided on this post is for general informational purposes only and should not be considered financial or legal advice. Always consult with a financial advisor or attorney before making any financial decisions. Some of the links in this post are affiliate links, meaning, at no additional cost to you, we will earn a commission if you click through and make a purchase.
MCLR is the minimum lending rate at which a bank is not authorised to lend.
Prior to MCLR, there existed the Base Rate Policy, which had some transparency issues and direct change of interest rate to Repo Rate (The rate at which RBI lends to commercial banks).
The MCLR is a bank’s internal reference rate used to calculate how much interest they may levy on loans.
The MCLR policy allows banks to adjust their interest rates in relation to repo rates almost instantaneously.
The bank combines the MCLR by a “spread” (interest rate above and above the MCLR) and then applies an interest rate on your loans.