As you would know, starting April 1, 2016, banks now use a new method of calculating the interest rates to lend. This new method is referred to as MCLR or Marginal Cost based Lending Rate.
How does it work?
So, now banks have a menu of interest rates based on the period of loan you want to opt for.
These periods are:
- 3 months
- 6 months
- 1 year
- 2 years
and so and so forth.
For every such period the bank will declare an MCLR, a so called base rate.
The bank will then add a spread or its margin to that MCLR and offer you a loan at that rate.
Interest Rate = MCLR + Spread / Margin
So for example, if the 1 year MCLR of SBI is 9.15%, it will add its spread / margin of 0.25% and offer you a home loan at 9.40%.
Get it!
