Buying a home is a significant milestone, and for most of us, it comes with an even more substantial commitment: a home loan. That is why understanding how your interest rate is decided is just as important as finding the right property. If you have spoken to a bank recently, you have probably heard terms like ‘what is EBLR,’ ‘what is the external benchmark lending rate,’ or even the full form of EBLR in banking, but not everyone explains what they actually mean for your EMI.
In simple terms, EBLR is the mechanism that links your home loan interest rate to an external, market-linked reference set as per RBI guidelines. Once you understand EBLR meaning and how your rate is calculated, it becomes much easier to compare offers, negotiate with your lender, and decide whether to stay with your current loan or switch. It also helps you see how RBI policy changes translate into higher or lower EMIs over time.
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So when people search for what is external benchmark lending rate is, they’re really asking about this framework the RBI has pushed banks to use to price loans more transparently.
In the earlier system, banks commonly used internal benchmarks like the Base Rate or MCLR (Marginal Cost of Funds-based Lending Rate). Those internal rates didn’t always reflect RBI’s policy changes quickly, which meant borrowers didn’t get the benefit of rate cuts on time.
Under EBLR, loan rates are tied to a public, market-linked benchmark, so that changes in monetary policy are passed through more quickly to borrowers.
The Reserve Bank of India (RBI) made it mandatory for banks to link all new floating-rate personal/retail loans (including home loans) and floating-rate MSME loans to an external benchmark with effect from 1 October 2019.
Banks can choose from a set of approved benchmarks, such as:
RBI’s goals were clear:
So, if you’re wondering what EBLR is in a regulatory sense, it is the RBI-mandated framework that links many floating-rate loans to an external benchmark rather than a purely internal bank rate.
Now that we’ve covered what is external benchmark lending rate is at a high level, let’s look at how it actually works for your home loan.
Most lenders follow a simple structure when they calculate the rate on an EBLR-linked home loan. Conceptually, it looks like this:
Home Loan Interest Rate = External Benchmark + Spread + Credit Risk Premium (if any)
Where:
In many cases, banks combine spread and risk premium into one overall “spread” over the benchmark.
So in practice, if someone asks what is EBLR rate is, they’re talking about this benchmark-linked rate that your bank uses as the base for your home loan interest.
You might see phrases like:
Repo Rate (external benchmark) + 2.50% (spread) = EBLR 8.75%
Your actual home loan interest could then be this EBLR itself or EBLR plus an additional small product-specific component, depending on the bank’s pricing.
Imagine the following scenario:
Then:
EBLR = 6.25% + 2.25% = 8.50% p.a.
If the bank has no extra risk premium or product markup, your EBLR home loan interest rate would be 8.50% per annum.
If RBI later reduces the repo rate by 0.25%, the benchmark becomes 6.00%, and your new EBLR becomes:
EBLR = 6.00% + 2.25% = 8.25% p.a.
So, essentially, EBLR is the external benchmark the bank is using, what spread they add, and how that translates into the effective rate they will pay.
The external benchmark (like Repo Rate) changes whenever the RBI’s Monetary Policy Committee revises it, typically every 2 months. However, your bank doesn’t reprice your loan every time overnight.
RBI has instructed banks to reset interest rates under external benchmark-linked loans at least once in three months.
That means:
This makes EBLR home loans more responsive than older systems, but still reasonably predictable.
If a friend asks you in plain words what EBLR is, you can explain it like this:
It’s a home loan interest system where your rate is directly linked to a publicly visible external rate (like the RBI repo rate). When that benchmark moves, your loan rate and EMI or tenure also move, usually every 3 months.
Borrowers often compare EBLR vs MCLR because MCLR was the standard benchmark system before 2019.
MCLR (Marginal Cost of Funds-based Lending Rate) is an internal benchmark calculated by each bank based on its cost of funds, operating costs, and a few other factors. It is revised periodically (often monthly) but does not necessarily move in line with RBI repo rate changes immediately.
Under MCLR:
| Aspect | EBLR (External Benchmark Lending Rate) | MCLR (Marginal Cost of Funds-based Lending Rate) |
| Benchmark type | External (repo, T-bill yield, FBIL rate) | Internal (bank’s own cost of funds formula) |
| Transparency | High – benchmark is publicly available | Lower – internal formula, less visible to customers |
| Policy transmission | Faster and more direct to borrowers | Historically slower, incomplete pass-through |
| Rate reset | At least once in three months (for most retail loans) | As per bank policy (often monthly), but linked to the internal cost structure |
| Volatility for the borrower | More sensitive to RBI moves | Relatively smoother, but may delay benefits |
| Applicability | Mandatory for new floating-rate retail and MSME loans from Oct 2019 | Still applies to older loans unless switched |
So in the debate of EBLR vs MCLR:
It depends on:
For someone with a long remaining tenure and an older loan at a relatively high rate, switching to an EBLR-linked loan may reduce interest cost over time, provided the spread is competitive, and switch charges are reasonable.
However, if you are close to finishing your loan, or you strongly prefer stable EMIs and are on a fairly low MCLR rate already, switching may not always be necessary.
Now, the part that matters most: what does all this mean for your monthly cash flow?
Suppose:
At the next reset date:
This can lead to either:
RBI has recently clarified that lenders must show you clearly how rate resets affect EMI and/or tenure and give you options like increasing EMI, increasing tenure, or a mix, and even the option to switch to a fixed rate or prepay more.
This means borrowers now have more clarity on the impact of benchmark changes compared to earlier years.
The reverse is also true:
So an EBLR-linked home loan is a double-edged sword:
Let’s say:
If the benchmark falls by 0.50% and your rate becomes 8.00%, your EMI may fall by a noticeable amount, and your total interest cost over the loan’s life would reduce by several lakh rupees. Exact numbers depend on how your bank adjusts EMI vs tenure, but the direction is very clear.
Over a 15–20 year loan:
However, if you ignore your loan for years and rates rise significantly, you could end up paying more than a borrower who locked in a fixed or lower internal benchmark rate earlier. The system rewards borrowers who stay informed and act when needed.
If your current home loan is under Base Rate or MCLR, you might be wondering whether you should switch to an EBLR-linked loan.
Step 1: Find out your current effective interest rate: Look at your latest loan statement. Or log in to net banking / mobile app. Or ask your relationship manager.
Step 2: Ask your bank: What is the current EBLR with your existing spread? If you convert to the latest home loan product, what spread / rate will you get?
The key question to ask is literally: “Can you tell me what is EBLR rate is applicable to my home loan if I switch today?”
Compare:
Banks may charge:
Ask clearly:
Even if the new rate is lower, a high one-time fee could eat into your benefit.
EBLR home loans are more market-linked:
In practice, most retail borrowers now naturally end up under EBLR for new loans; the switch question mainly affects legacy loans.
Once you understand what is external benchmark lending rate i,s and how it behaves, you can use a few smart practices to keep your home loan under control.
You don’t need to become a market expert, but it helps to:
Most banks publish their benchmark lending rates and external benchmark changes on their websites.
If you see that your bank’s EBLR is much higher than competitors’ for similar products, consider:
Whenever your cash flow allows:
Under an EBLR system, prepayments give you more flexibility:
Whenever your loan rate resets due to a change in EBLR, many lenders give you a choice:
Think about:
The RBI now expects lenders to clearly show the impact of these options at each reset.
Even under EBLR, banks can apply a credit risk premium based on your profile. A better credit score and cleaner repayment history can help you:
While the external benchmark is the same for all, the spread is where your personal profile matters.
Your home loan is likely to be one of the longest financial relationships you’ll ever have, so it makes sense to understand the rules that govern it. Knowing what is EBLR, the EBLR full form, and the actual EBLR meaning is gives you much more control over how much interest you pay over the years.
EBLR stands for External Benchmark Lending Rate. In home loans, it is the interest rate that your bank calculates by linking your loan to an external benchmark (like the RBI repo rate) plus a fixed spread. This makes your home loan rate more transparent and directly connected to market and policy rate movements.
EBLR is the rate your bank charges you, built as “external benchmark + spread.” MCLR is an internal benchmark calculated by each bank based on its own cost of funds, so it may not move in line with RBI changes quickly. The repo rate is simply one of the RBI policy rates; it can be the external benchmark used in EBLR, but by itself it is not your loan rate. So, EBLR is your loan’s pricing framework, MCLR is an older internal framework, and repo is a policy rate that may be used as the benchmark.
All new floating-rate home loans are now typically offered on an EBLR-linked basis. Existing loans taken earlier under Base Rate or MCLR do not automatically shift to EBLR, but you can usually request a switch to an EBLR-linked product by paying a conversion or processing fee if your bank allows it.
While the external benchmark (for example, the repo rate) changes whenever the RBI revises it, banks usually reset EBLR-linked home loan rates at predefined intervals, often once every three months. Your EMI or tenure is then adjusted at that reset date based on the updated benchmark plus the spread.
It can, especially over a long tenure. Because EBLR is directly linked to an external benchmark, rate cuts from the RBI tend to reach you faster, which can lower your interest cost and EMIs compared to some older MCLR or Base Rate loans. However, the same is true in reverse when rates rise, so the actual savings depend on how rates move, the spread your bank offers, and whether you actively review and manage your home loan.
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