A home-loan rate is not just “repo” or “MCLR”. Write the actual formula: benchmark + contractual spread, then record how often the benchmark resets for your loan, whether the spread can change, and how the lender adjusts EMI versus tenure.
The RBI’s updated floating-rate EMI reset FAQ applies to equated-instalment personal loans linked to both external and internal benchmarks, including MCLR. It requires communication of the impact of benchmark changes and describes borrower options such as EMI increase, tenure extension or a combination, fixed-rate switching where the lender offers it, and part/full prepayment.
| Feature | Repo/external benchmark loan | MCLR/internal benchmark loan |
|---|---|---|
| Benchmark movement | Tracks an external reference subject to contractual reset | Tracks lender’s internal benchmark |
| Your actual rate | Benchmark + spread | MCLR + spread |
| Reset timing | Check sanction/loan agreement | Check reset date/frequency for your account |
| Rate shock response | Compare EMI increase, tenure extension, combination, switching or prepayment options | |
Compare on the same balance and remaining term
Suppose two offers both quote 8.5% today, but one resets quickly and the other later. A snapshot does not tell you which is cheaper over five years. Model at least three cases: benchmark unchanged, benchmark +1 percentage point, benchmark −1 percentage point. For each, calculate EMI/tenure effect under the lender’s actual reset rules.
Watch the “same EMI, longer tenure” effect
When rates rise, keeping EMI unchanged can push repayment far into the future. Ask for the revised number of EMIs and total interest, not only reassurance that “your EMI stays the same”. The RBI FAQ also says quarterly statements should disclose principal and interest recovered, EMI, EMIs left and the annualised rate—use that data to monitor drift.
Do not refinance for a small headline gap without break-even math
For a transfer, calculate total switching cost and divide it by realistic monthly interest savings. Keep the same remaining end date in both scenarios. A lower EMI achieved only by restarting a long tenure is not necessarily a saving.
Decision rule: choose and monitor the loan based on benchmark + spread + reset frequency + borrower options. “Repo-linked is always better” and “MCLR is always stable” are both oversimplifications.