Home » 6 Key Differences Between Repo Rate and MCLR 

6 Key Differences Between Repo Rate and MCLR 

by janeausten

While availing of a home loan, borrowers usually opt for either fixed or floating interest rates. RBI determines the benchmark rate and financial institutions decide the loan interest rates depending upon it. The current repo rate and the MCLR are two of the crucial factors that affect borrowing. 

Before making the right choice by deciding which one to go for, it is important to know the difference between the repo rate and the MCLR.

Top 6 Differences Between Repo Rate and MCLR 

RBI has revised the current repo rate, and it has been set at 5.90% in response to present and future economic conditions. Undoubtedly this has created an impact on MCLR as well. Here are some factors depending upon which the repo rates differentiate from the MCLR.

Definition: What is repo rate and MCLR?

The repo rate is the interest rate at which RBI lends money to financial institutions and NBFCs. On the other hand, the marginal cost of funds-based lending rate (MCLR) is the minimum interest rate that the financial institutions charge their borrowers for a loan.

The repo rate is lesser than the MCLR. It is an internal rate for reference among banks.  While the MCLR is fixed on the basis of current cost of funds, the repo rate is fixed on the basis of the average cost of funds.

Deciding authority

The Reserve Bank of India always determines the repo rate, whereas individual financial institutions decide the MCLR. However, the repo rates are continually reviewed by Monetary Policy Committee.

Reset period

Financial institutions typically revise repo rate linked home loans after every 3 months, and it also directly impacts the EMI payables the borrower needs to pay.

On the other hand, the reset period of MCLR ranges within a period of 6 to 12 months. This means that if there is any change made in the repo rate, the borrowers will notice the implemented changes in the MCLR only after a period of 6 to 12 months.

Period for transmission

The repo rate changes immediately without any prior notice. Therefore, the interest rates also change quickly, and it is reflected on the borrowed loan EMI immediately. So, repo rate is an important factor that impacts home loan interest rates.

In contrast to this, the interest rates for MCLR change slowly. This means the borrower gets enough time to adjust to the changes made to the interest rates.


The repo rate offers more transparency than the MCLR. Due to this, whenever RBI lowers or increases the repo rate, the borrowers get a fair idea that their interest rate will also alter accordingly.

However, this level of transparency is still lacking with the MCLR.


MCLR is undoubtedly a better option when it comes to stability. This is because, with every shift in the repo rate, it’s linked interest rates change. In fact, as its transmission is early, it becomes difficult for the borrowers to arrange for the finances if the repo rate increases all of a sudden. 

However, in the case of MCLR based home loans, the interest rates shift slowly. Thus, it offers the borrowers a longer tenor to arrange for the finances.

These are the top differences between RBI’s repo rate and the MCLR. Borrowers who are planning to take home loans can ask their lenders about both these rates because the MCLR might change depending upon whether an individual is a recurrent or first-time borrower.

Most NBFCs and lenders provide pre-approved offers for financial products like loan against property and others. These offers can help streamline the overall loan application process. Individuals can check their pre-approved offers by providing the required details, such as their names and contact numbers. 

So, before choosing the lender for the loan products, one must possess a fair idea of the current repo rates and MCLR. This will make it easier for the borrower to narrow down their choices and choose the lender that best suits their requirement. One should also check out an online EMI calculator to find a suitable loan offer. 

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