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Why are repo rate loans cheaper?

By IndianMoney , 11 months ago

Earlier banks used to determine the interest rate for their loans based on the MCLR (Marginal Cost of funds based Lending Ratio) which is further based on marginal cost of funds, negative carry on cash reserve accounts, operating costs, and tenure premium. Whereas in the case of repo rate linked loans, the banks have to take repo rate as a base rate and add a reasonable percentage as spread to cover their costs and make a profit. Because of this, repo rate loans are cheaper.

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