Navigating the world of financial jargon can be confusing, especially when you’re trying to secure a loan.
The uncertainty of what specific terms mean and how they apply to you can cause confusion. You might have encountered the term ‘PLR’ and wondered, “What does this stand for?” or “How does this affect the loan I’m interested in?”.
Let’s dive in and shed some light on PLR so that you will have a clear picture the next time you’re looking for low interest home loans or trying to decode your loan agreement.
Understanding PLR
PLR is an acronym that stands for Prime Lending Rate. It refers to the interest rate commercial financial institutions lend to their most credit-worthy customers.
In essence, it’s the best rate you can get, and typically, only the most financially stable customers will receive this rate. However, the dynamics of PLR can change based on various economic factors.
PLR serves as a benchmark for the financial institution. Depending on the product and the customer’s credit profile, customers might be offered loans at PLR, above PLR, or even below PLR.
The rate is determined by individual financial institutions and can fluctuate based on monetary policy, inflation rates, and other economic indicators.
Connection Between PLR and Other Loan Rates
Just because you’ve come to understand the PLR full form and what it implies doesn’t mean you’ll always be offered loans at that rate. Financial institutions use PLR as a base, but different types of loans will come with their rates, influenced by the PLR.
● Secured vs. Unsecured Loans: Secured loans, like home loans, generally have lower interest rates as an asset backs them. Unsecured loans, like personal loans, usually have higher rates due to the increased risk to the financial institution.
● Loan Tenure: Longer tenures might have different rates than shorter ones. A 30-year home loan could have a different rate than a 15-year loan.
● Customer’s Credit Profile: As mentioned in Ravi’s example, a strong CIBIL score for home loan and financial history can lead to rates closer to the PLR, especially for low-interest home loans.
How to Benefit from Understanding PLR
Being aware of PLR and how it impacts the loan rates can benefit prospective borrowers.
● Negotiating Power: If you know the PLR, you have a starting point for negotiation. Understanding that a financial institution’s offer is PLR + 2% allows you to compare offers more effectively.
● Making Informed Decisions: Knowing the PLR can help you decide when to borrow or wait for a more favourable economic climate.
● Planning Finances: If you know that the PLR might rise due to economic factors, you can plan your finances better, especially if you have a floating-rate loan.
Conclusion
PLR is more than a financial term. It’s a benchmark that can influence the loan rates you’re offered. While not everyone may get a loan at the PLR, understanding it empowers you to make informed financial decisions and confidently navigate the world of borrowing. Whether you’re seeking low-interest home loans or any other financial product, a grasp of PLR can benefit every borrower.