What Is PLR (Prime Lending Rate) In Home Loan

Consumers mostly reach out to financial institutions while taking loans, be it personal loans, home loans, or education loans. Prime Lending Rate is a specific interest rate at which such bodies lend an amount to their most efficient and credit-worthy borrowers.

The introduction of the Prime Lending Rate has brought about quite a few changes in lending policies. The concept of benchmark PLR was introduced in 2003 by the Reserve Bank of India. Many lending institutions have enforced the same to determine the rates offered.

Let’s get to know the PLR meaning better.

What Is PLR?

The PLR full form is Prime Lending Rate, and many lending institutions are following the principle of offering selected interest rates to the borrowers in whom they have utmost faith. Lenders distribute prime and home loan rates uniformly across different branches. Hence, any change in BPLR (Benchmark Prime Lending Rate) directly affects the floating rate of interest set for a home loan. However, loans with a fixed interest rate don’t get affected by PLR.

The interest rates can go below and beyond the loans provided to the customers. The PLR varies from one financial body to another. Commercial firms charge lower rates to preferred borrowers because of their proven ability to make repayments on time and not fall under default when it comes to loan repayments.

There are plenty of different roles that are available across the economy. These rates apply to the most creditworthy customers and are lower than the regular interest rates. For instance, your income, credit score, company choice, etc., will affect the interest rate your lending institute will usually charge. This is why these rates are called “Linked To Prime”.

Borrowing automatically leads you to get your interest rate decided by Prime Lending Rate, which is incurred with or without an interest rate. However, one thing to know about PLR is how the rate of interest changes and can increase or decrease accordingly.

Understanding MCLR And Repo Rate

MCLR stands for Marginal Cost Lending Rate. It is the minimum interest rate below which a lending institution can’t lend any amount. For floating-rate loans, this is set as the benchmark.

On the other hand, a Repo rate is regarded as the external benchmark based on which retail rates and floating rates are fetched. Repo stands for Repurchasing Option or Repurchasing Agreement. A Repo is an agreement between the financial institution and RBI and helps in availing overnight loans. This allows the lending body to have funds handy that will eventually assist in operating businesses effectively.

Difference Between PLR, MCLR, And Repo Rate

Let’s understand the difference between PLR, MCLR, and Repo Rate:

• MCLR is an internal rate which works as per RBI regulation. PLR and Repo Rate, on the other hand, are external rates.
• Lending bodies usually follow MCLR and Repo Rates, while NBFCs and HFCs typically follow PLR.
• The MCLR is set by the RBI. PLR is the internal rate set for NBFCs that are not scrutinised by regulatory bodies. The Repo Rate is set at 6.25% for India in Dec'22.
• MCLR reset rate is annual but is reviewed monthly. There is no fixed time for a PLR review, and its reset rate changes when the PLR rate changes. The Repo Rate is reviewed by the RBI every 2 months. The reset rate happens in 3 months.

PLR Formula

The interest rate is the sum of spread and prime lending rates. The formula is:

Interest Rates = Spread + Prime Lending Rate.

Spread is basically the price you as a borrower will have to pay on top of the repo rate, to avail of the loan the lender has to offer.

Conclusion

The prime lending rate is a concept everyone should know. The final home loan interest rate is calculated to spread and PLR. Prime Lending Rate and Applicable Spread sum up to carry out the home loan. However, certain underlying factors for PLR are necessary to understand.

PLR in home loans varies from one lending body to another, so it is essential to know all the terms and conditions before learning about them. You can check out Grihashakti’s home loan interest rates if you wish to learn more about housing loans and your eligibility for them. For the latter, you may check out the online eligibility calculator available.

Note: "At Grihashakti, the interest rates are linked to the Retail Prime Lending Rate. Please check our ROI page to know more."

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