Bank of Baroda hikes interest rates on home loans, other loans

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Bank of Baroda has become the most recent lender to raise its marginal cost of funds-based lending rate (MCLR). According to a BSE filing by the bank, it has hiked MCLR by up to 35 basis points across all tenures. The latest loan interest rates come into effect on January 12, 2022.After the latest revision, MCLR has surged from 7.50 percent to 7.85 percent for overnight tenure. The MCLR for one month has been raised from 7.95 percent to 8.15 percent. The MCLR for three-month tenure has climbed from 8.05 percent to 8.25 percent. The MCLR for six-month tenure has risen from 8.15 percent to 8.35 percent while MCLR for one-year tenure has been hiked from 8.30 per cent to 8.5 percent, post revision.

What is MCLR?
The MCLR, or marginal cost of funds-based lending rate, is the lowest interest rate at which banks can lend to clients. In 2016, the Reserve Bank of India (RBI) implemented MCLR to determine the interest rates on various forms of loans. It is an internal reference rate used by banks to offer competitive and transparent loan terms. Banks had disbursed MCLR-linked house loans until September 30, 2019.

How MCLR hike will impact borrowers?
Any change in the MCLR will have an immediate impact on loan costs because it implies an increase in the loan interest rate. If the interest rate on the loan rises, EMIs will rise automatically until the bank cuts its mark-ups/margins on loans. Borrowers must now pay more to pay EMIs on loans tied to the MCLR.

When the loan reset date is set for existing borrowers, the increase in MCLR will affect their EMIs. Typically, MCLR-based loans have a duration of six months or a year. Typically, banks use the current MCLR rate to determine the future EMIs on the reset date. Please be aware that the upcoming EMIs (until the next reset date) are determined by the effective interest rate (MCLR rate plus margin effective), the outstanding loan balance, and the remaining loan term.

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