People usually contact banks and lending companies to take personal, educational, wedding, or home loans. Discovering seamless home loan transfer means grasping the Prime Lending Rate (PLR). The prime lending rate (PLR) is a particular rate of interest at which these financial institutions lend money to their credit-worthy borrowers.
The release of the Prime lending rate has changed lending policies to some extent. The RBI introduced the concept in 2003, and lending companies have enforced it to assess their rates. Unveiling PLR’s importance is key to banking interest rates, helping borrowers manage finances better. Read on to learn more about PLR’s role in shaping rates, letting people make informed choices about home loans.
What is PLR in Banking?
PLR in banking is when banks and lending companies follow the rule of offering specific interest rates to home loan borrowers on whom they can rely upon. Banks distribute the PLR and home loan rates equally in their different branch. So a change in Benchmark Prime Lending Rate impacts the floating interest rates set for a house loan. PLR does not impact home loan interest rate.
The PLR may differ from one bank to another. Banks charge lower interest rates to specific borrowers because of their high creditworthiness and ability to repay on time without turning defaulters.
Factors That Affect PLR
- Now that you know what PLR is in banking, it is essential to know how lenders choose their PLR. Lenders choose the PLR by conducting an internal board meeting. The Board of Directors of the lending company decides the final PLR. After the board has made its decision, all the branches of the bank throughout the nation have to follow it.
- Depending on the PLR, the lender decides the home loan interest rates. The interest rate a bank charges the borrower on the loan is the aggregate of the PLR and spread. As a borrower, you should understand that the spread can be positive or negative, and after a decision, it stays the same throughout the loan tenure.
- Borrowers should also understand that PLR changes impact the loans sanctioned on floating interest rates. Change in PLR doesn’t impact the interest charged on loans, especially on fixed interest rates.
Knowing MCLR and Repo Rate
Understanding MCLR and Repo Rate is essential for borrowers. The Marginal Cost Lending Rate (MCLR) is the lowest rate of interest below which a bank cannot lend money. It is marked as a benchmark for floating-rate loans. The Repo Rate, set by RBI, is considered the exterior benchmark depending on which fixed and floating rates are set.
When the Repo Rate drops, MCLR might also decrease, possibly leading to lower loan costs. It’s vital to stay informed about these rates to make informed financial decisions.
Difference between PLR and MCLR
- PLR is an external rate, while MCLR is an internal rate set by the RBI.
- PLR review can be done anytime, and the reset rate changes with the PLR rate change. The MCLR rate is reset annually and reviewed monthly.
- NBFC and HFC banks follow PLR while lending bodies follow MCLR.
Understanding how MCLR and PLR impact your home loan interest rate will help you do home loan transfers more effectively. You should go for a loan balance transfer to make the most of the lowest interest rate. It will help you avail the advantages of Prime Lending Rates on your house loan. RBI does not give the PLR. Hence you can negotiate with the bank to get a high loan amount sanctioned on reduced interest rates on flexible terms. The bank has complete sovereignty to choose the interest they want to approve your loan, depending on your eligibility.
Ultimately, the concept of prime lending rate should be known to all. The final home loan interest rate includes the PLR and spread. PLR in home loans differs from one bank to another; hence as a borrower, it is important to know all the terms and conditions before proceeding with the loan. Also, check your eligibility on the eligibility calculator online to learn about your financial profile.