What is the difference between rplr and base rate

A markup or discount is also called Spread. Now i will explain how it will not impact in terms of interest rate. Assuming Bank A is offering interest rates Now instead of increasing rates for new borrowers to The new borrowers can still avail loan at Similarly in BPLR scenario, it will increase by 0. With a BPLR of If the movement of benchmark rate is same then the borrower is not benefited because both are paying the same interest rate of The borrower of Bank A Base Rate of The best possible scenario for a borrower is to avail loan as close to Base Rate as possible i.

On the other hand, as distant from BPLR as possible i. Though i agree this cannot be fine tuned because future is uncertain. Whereas for a Bank A there is no option but to decrease Base Rate. The new base rate will be 7. When RBI reduces or increases the repo rate, borrowers now know that the interest rate on their existing loans will rise or fall immediately.

In the case of repo-linked loans, the transmission of RBI's repo rate change will be faster but it is not necessary that repo-linked loans will be cheaper than MCLR-linked loans all the time.

Worth mentioning here is that repo rate is near its year low now. So repo-linked loans may look cheaper. When RBI will start increasing repo, the increase in repo-linked interest rate will also be faster. Whereas in MCLR-linked loans, an increase in repo rate will take some time to be passed on to the borrower. In the case of repo-linked loans, banks add spreads to the repo rate to cover their operating costs and risk premium. This spread varies from bank to bank, hence the final rate imposed on the end borrower also varies despite the rate being linked to the same benchmark.

If you believe that your bank is charging a higher spread compared to other banks then you can shift your loan to a different bank with a lower spread provided the difference in rates is at least 50 basis points. Get the latest investment tips at Times Now and also for more news on money saving tips , follow us on Google news. Follow us on :. ET Now Digital. Updated Apr 07, IST.

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