Banking: This bank gave a big gift before Diwali, made home and car loans so cheap...

HDFC Bank, the country's largest private sector bank, has announced a significant reduction in loan interest rates for its millions of customers just ahead of the festive season. Amid Diwali shopping and preparations for celebrations, the bank has announced a reduction in loan interest rates, making it easier for people to obtain loans for homes, vehicles, or other needs. This move will not only benefit new customers but is also expected to ease the burden on existing customers.

How much is the reduction?
HDFC Bank has reduced its Marginal Cost of Funds-Based Lending Rate (MCLR) by up to 0.15 percent. This reduction has been made for loans of various tenures. In financial terms, MCLR is the minimum rate below which no bank can offer a loan. When a bank reduces this rate, its floating rate loans become cheaper.

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The biggest and most direct benefit of this is for customers taking home loans, car loans, and personal loans, as the interest rates on these loans are directly linked to the MCLR. The new rates, implemented by the bank from October 7, 2025, will help reduce customers' monthly installments (EMIs). Let's take a look at the changes in rates for different tenures.

Overnight MCLR: Reduced from 8.55% to 8.45%.
One-month MCLR: Reduced by the maximum of 0.15%, from 8.55% to 8.40%.
Three-month MCLR: Reduced by 0.15%, from 8.60% to 8.45%.
Six-month MCLR: Reduced from 8.65% to 8.55%.
One-year MCLR: Most consumer loans are linked to this rate. This rate has also been reduced from 8.65% to 8.55%, providing relief to a large number of customers.

Two-year and three-year MCLR: The rates for these longer tenures have been reduced from 8.70% to 8.60% and from 8.75% to 8.65%, respectively.

How much will this impact your pocket?
The biggest question now is how this reduction will impact your pocket. Whenever a bank reduces the MCLR, the EMI of your floating rate loan reduces. When the reset date of your loan arrives, the new, reduced interest rate will be applicable. For example, if your home loan is linked to a one-year MCLR, your interest rate will decrease by 0.10% on the next reset date, reducing your monthly installment.

While this reduction may seem small, it translates into significant savings for long-term loans like home loans. Even a small reduction in your EMI can save a significant amount over a year, allowing you to use that money to meet other financial needs.

What is MCLR, which increases or decreases your EMI?
Many customers wonder what MCLR is and how it works. MCLR stands for "Marginal Cost of Funds Based Lending Rate." It is an internal benchmark implemented by the Reserve Bank of India (RBI) in 2016. Banks determine their loan interest rates based on this rate.

MCLR calculation depends on several factors. The most important factors include the bank's cost of deposits (i.e., the interest it pays to customers on deposits), the RBI's repo rate, the cost of maintaining the cash reserve ratio (CRR), and the bank's own operating expenses. Whenever the RBI makes any changes to the repo rate in its monetary policy, banks are pressured to adjust their MCLRs.

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