Fixed or floating personal loan? EBLR, MCLR and the repo rate explained
How fixed and floating personal loan rates work in India, what EBLR and MCLR mean, how resets happen and what RBI lets you choose when a floating rate rises.
Most personal loans in India are fixed-rate: the rate and EMI stay the same for the whole tenure, whatever the RBI does. Some banks offer floating-rate personal loans, which must be linked to an external benchmark such as the RBI policy repo rate (an EBLR loan), with the rate reset at least once every three months. Older floating loans may still be linked to the bank's internal MCLR. A floating loan moves with the benchmark but carries a big advantage: RBI rules do not allow foreclosure or prepayment charges on floating-rate loans to individuals for non-business purposes. A fixed loan gives certainty but may carry foreclosure charges.
This guide is part of the personal loan interest rates overview.
Fixed and floating side by side
| Feature | Fixed-rate personal loan | Floating-rate personal loan (EBLR) |
|---|---|---|
| Rate over tenure | Same for the whole tenure, as per agreement | Benchmark + spread; changes at each reset |
| EMI | Constant | Changes, or the tenure changes, after a reset |
| Typical availability | Most banks and nearly all NBFCs | Some banks; less common |
| Foreclosure / prepayment charges | May apply as per KFS and agreement | Not allowed on loans to individuals for non-business purposes |
| Good for | Budget certainty, short tenures | Borrowers who expect to prepay, or expect rates to fall |
| Risk | You do not gain if rates fall (except by switching) | EMI or tenure rises if the benchmark rises |
What EBLR and MCLR mean
External benchmark lending rate (EBLR). Since 1 October 2019, banks must link new floating-rate retail loans to an external benchmark. In practice most banks use the RBI policy repo rate; the RBI framework also allows certain FBIL-published benchmarks. The loan rate is the benchmark plus a spread. The spread has a credit risk premium that can change only if your credit assessment changes substantially, as agreed in the contract, and other components that the bank cannot raise freely. The rate must be reset at least once every three months.
Marginal cost of funds based lending rate (MCLR). An internal benchmark each bank calculates from its own cost of funds, used for floating loans from April 2016 until external benchmarks took over for retail loans. Loans sanctioned on MCLR can continue on it; borrowers may be able to switch to EBLR on terms the bank sets.
NBFCs are not bound by the bank EBLR framework. Their floating rates, where offered, are linked to the NBFC's own reference rate, which the NBFC sets under its board-approved policy. Read how that reference rate is defined before choosing a floating NBFC loan.
Illustrative example of an EBLR personal loan rate
| Component | Illustrative value |
|---|---|
| RBI policy repo rate (RBI website, late October 2026) | 5.50% |
| Bank's spread for operating cost and margin | 3.00% (illustrative) |
| Credit risk premium for this borrower | 2.75% (illustrative) |
| Loan rate | 11.25% |
If the repo rate later fell by 0.25 percentage points, the loan rate would fall to 11.00% from the next reset. If it rose, the rate would rise. Spreads differ widely between banks and borrowers; these numbers only show the arithmetic.
What happens at a reset
RBI's instructions on resetting floating rates on EMI-based personal loans (applicable from the end of 2023) require lenders to:
- explain at sanction how a benchmark change could affect your EMI or tenure;
- inform you of any change in EMI or tenure when the rate is reset;
- give you the option, at reset, to switch to a fixed rate as per the board policy, with any switching charges disclosed;
- let you choose to increase the EMI, extend the tenure, or both, and to prepay in part or full at any point;
- avoid tenure extensions that lead to negative amortisation, where the EMI no longer covers the interest;
- send a statement at the end of each quarter showing principal and interest recovered, EMI, remaining EMIs and the annualised rate.
Worked example: EMI or tenure after a rise
An illustrative ₹5 lakh loan at 11% for 5 years has an EMI of about ₹10,871. After 12 months the balance is about ₹4,20,623. The rate is reset to 11.5%.
- Keep the tenure: the EMI rises to about ₹10,974, about ₹103 more a month.
- Keep the EMI: the remaining tenure goes from 48 to about 49 months.
On a short personal loan a small rate rise changes little; on a longer loan or a bigger rise the tenure extension can add up. Keeping the tenure usually costs less interest overall.
Which to choose
- Will you prepay? If you expect a bonus or other money within a year or two, a floating loan without foreclosure charges can be cheaper even at a slightly higher starting rate. See foreclosure and prepayment charges.
- How tight is your budget? If a higher EMI would strain you, a fixed EMI is easier to plan.
- How long is the loan? Over one or two years, the rate path matters less than the fees.
- What does the KFS say? Compare the APR of each option; see the KFS guide.
Frequently asked questions
Does an RBI repo rate change affect my fixed personal loan?
No. Your EMI stays as agreed. A lower repo rate may make new loans cheaper, so a balance transfer could be worth checking.
How quickly does a repo change reach an EBLR loan?
At the next reset date in your agreement. Banks must reset at least once every three months, so the delay can be up to three months.
Can I move my MCLR-linked loan to the repo rate?
Banks generally allow a switch on their own terms, sometimes with a fee. Ask for the new spread and compare the rate after switching.
Is a floating NBFC loan the same as an EBLR loan?
No. NBFC floating rates follow the NBFC's own reference rate, which it sets internally.
Sources
- Reserve Bank of India — Master Direction on interest rate on advances, instructions on reset of floating rates on EMI-based personal loans, current repo rate
- Financial Benchmarks India — benchmarks published by FBIL
- RBI Complaint Management System — complaints about resets that were not communicated
