What is the Full Form of PLR in Banking?
Thе Full Form of PLR in Banking is Prime Lending Rate. PLR, by definition, stands for prime lending rate or, more precisely, the benchmark interest rate used by financial institutions while providing loans to clients. Reserve Bank of India introduced PLR in 2003. Loans that have fixed interest rates remain impervious to the change in PLR. On floating interest rates, such as home loans, this change has an impact directly. Each institution decides the PLR, thus based on various criteria, which affect the interest rates offered to borrowers.
Factors Influencing PLR
The PLR is affected by several factors such as funding costs, minimum margin requirements, and operating expenses of the institution. It will also depend upon economic indicators like the base rate declared by the RBI and other macroeconomic parameters related to inflation. The bank’s management—after considering all these factors—shall fix an appropriate PLR. A change in these factors will change the PLR and then further affect the interest rates on different loans. If understood, these factors will make it easier for a borrower to be prepared in advance for the fluctuations in loan costs.
Impact of PLR on Home Loans
The PLR vastly influences interest rates on home loans. Interest is determined by adding a “spread” to the PLR when a person applies for a house loan. The best rates are usually given to borrowers of high creditworthiness because of lower spread. Inversely, those who have lower credit scores have wider spreads, thus paying more for the loans. This makes it essential for prospective homeowners to keep a tab on the PLR trends and their financial implications since any adjustment to PLR is instantly reflected in the monthly EMI and the total amount to be paid.
