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MCLR or RLLR - Which one is more beneficial

 RLLR Repo Linked Lending Rate was introduced by RBI in Oct 2019. From 2019 to 2024, changes in *Marginal Cost of Funds-based Lending Rate* (MCLR) and *Repo Linked Lending Rate* (RLLR) would have influenced borrowers differently based on various factors, including changes in RBI policies, market conditions, and interest rates.


1. MCLR (Marginal Cost of Funds-based Lending Rate):

   - MCLR is tied to the bank’s internal cost of funds. It tends to be more stable compared to RLLR but can change based on the cost of borrowing for the bank, liquidity, and other factors.

   - MCLR rates tend to adjust more gradually, meaning borrowers may have seen more predictable, though slower, changes in their loan interest rates.

   - In a falling interest rate scenario (which India experienced during some periods between 2019–2024), MCLR-linked loans may have passed on rate cuts slower than RLLR-linked loans.


2. RLLR (Repo Linked Lending Rate):

   - RLLR is directly linked to the RBI’s repo rate. Since the repo rate fluctuates based on RBI’s monetary policy decisions, any changes in the repo rate are quickly reflected in RLLR-linked loans.

   - During periods when the RBI reduced the repo rate (like during the pandemic to boost economic activity), borrowers with RLLR-linked loans benefited more quickly from lower interest rates than MCLR borrowers.

   - However, RLLR is more volatile. In periods when the RBI increased the repo rate (such as post-pandemic recovery and inflation control measures), borrowers with RLLR-linked loans saw interest rates rise faster than MCLR borrowers.

# Summary (2019-2024):

-> MCLR would have been beneficial for borrowers seeking stability in interest rates over time.

-> RLLR would have been more beneficial when the RBI was cutting rates, especially in the earlier part of the period (e.g., 2020-2021 during the pandemic), but potentially less so during periods of rate hikes (e.g., late 2022-2024 when inflation concerns led to repo rate increases).

Borrowers who opted for RLLR loans might have experienced quicker benefits from rate cuts, while those with MCLR loans would have seen slower changes in their rates, both upward and downward.

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