📉 What is FRR and PLR?

These are the benchmark rates used by banks to determine the lending price for customers.

• ✅ PLR (Prime Lending Rate): The rate at which banks lend to their most creditworthy (prime) customers.
• ✅ FRR (Floating Reference Rate): A benchmark rate used specifically for floating-rate loans, often linked to the bank’s cost of funds.

📊 Understanding Variance (Spread)

Variance is the difference between the benchmark rate (like PLR) and the actual rate offered to you.

• ✅ It is often called the “Spread” or “Margin”.
• ✅ If PLR is 10% and your rate is 8.5%, the variance is -1.5%.
• ✅ This value is usually fixed for the duration of the loan.

💰 Interest Rate Basics

The cost you pay for borrowing money, expressed as an annual percentage.

• ✅ Effective Interest Rate: The actual rate you pay after including the variance.
• ✅ Calculation: Effective Rate = Benchmark Rate +/- Variance.

🔄 Fixed vs. Floating Interest Rates

Choosing the right type of rate affects your EMI stability.

Fixed Interest Rate:

• ✅ The rate remains constant throughout the loan tenure.
• ✅ Best for those who want predictable EMIs regardless of market changes.

Floating Interest Rate:

• ✅ The rate changes based on market conditions and benchmark movements.
• ✅ Usually lower than fixed rates initially, but carries the risk of increasing.

Pro Tip: Check the Reset Clause

For floating rates, always check the ‘Reset Period’. This determines how often the bank updates your interest rate in response to benchmark changes.