LoansFinancial Glossary
Floating Rate Loan
Definition
A loan where the interest rate fluctuates based on an external benchmark — typically the RBI repo rate (EBLR), MCLR, or base rate. When the benchmark changes, your EMI or loan tenure adjusts accordingly. Since October 2019, all new retail floating-rate loans must be linked to an external benchmark.
Why It Matters
Floating rates have historically been lower than fixed rates over the full loan tenure in India. The key risk is that during rising rate cycles, your EMI may not increase — instead, your tenure silently extends. A 20-year loan can become 25-30 years if rates rise significantly. Ask your bank to increase EMI rather than tenure.