APR, Annual Percentage Rate
The true annual cost of borrowing money, including interest and all fees. Unlike the advertised interest rate, APR accounts for processing fees, GST, and other charges. Always compare loans using APR, not just the headline rate.
Amortisation
The process of paying off a loan in equal installments over time. In a reducing balance loan (the Indian standard), each EMI covers interest on the outstanding principal plus a portion of the principal itself. Early EMIs are mostly interest; later EMIs are mostly principal.
CIBIL Score
A 3-digit number (300–900) that represents your credit history. Calculated by TransUnion CIBIL using your payment history, credit utilisation, loan types, and enquiries. Above 750 is considered good for loans. Banks give their best rates to borrowers with scores above 800.
Credit Spread
The extra percentage a bank charges above the base rate (repo rate) as profit margin. A bank might charge: Repo Rate (6.25%) + Credit Spread (3%) = 9.25% for a home loan. The spread varies by your credit profile and the bank's policies.
EBLR, External Benchmark Lending Rate
A loan rate linked directly to an external benchmark, typically the RBI repo rate. When RBI changes the repo rate, EBLR-linked loans adjust within 3 months. Introduced by RBI in 2019, making rate transmission faster and more transparent. Most new home loans are on EBLR.
EMI, Equated Monthly Instalment
The fixed monthly payment you make on your loan, covering both interest and principal. Formula: EMI = P × r × (1+r)^n / ((1+r)^n - 1), where P = principal, r = monthly rate, n = number of months. All EMIs are equal, but the interest vs principal ratio changes each month.
Fixed Rate vs Floating Rate
A fixed rate loan charges the same interest for the full tenure, your EMI never changes. A floating rate loan changes when the benchmark rate changes. In India, most home loans are floating rate. Most personal loans are technically fixed but banks can revise them. RBI rules require banks to disclose which type your loan is.
Foreclosure
Closing your loan before the end of the tenure by paying the outstanding principal in full. Banks may charge a foreclosure fee (typically 2-4%). RBI has banned foreclosure charges on floating rate personal loans, banks cannot legally charge you a penalty to close a floating rate loan early.
MCLR, Marginal Cost of Funds Based Lending Rate
The minimum rate at which banks can lend, calculated based on the bank's marginal cost of funds. Replaced base rate in 2016 but is slower to transmit RBI rate changes than EBLR. If your home loan is on MCLR, consider asking your bank to switch to RLLR/EBLR for faster benefit from RBI cuts.
Moratorium
A period during which you don't need to make loan repayments. Common in education loans, you don't pay during your course + 6-12 months after. Interest may or may not accrue during this period depending on the scheme. Education loan moratoriums under government schemes come with interest subsidies for eligible students.
Prepayment / Part-Payment
Paying extra money toward your loan principal before the due date. Reduces your outstanding balance, which reduces total interest. You can choose to reduce your EMI or reduce tenure after prepayment, reducing tenure saves more interest overall. RBI prohibits prepayment charges on floating rate loans.
Processing Fee
A one-time fee charged by the lender when your loan is approved, covering their administrative costs. Typically 0.5% to 2% of the loan amount + 18% GST. This fee is negotiable, especially if you have a high CIBIL score or existing relationship with the bank.
Repo Rate
The rate at which the Reserve Bank of India (RBI) lends money to commercial banks. When the repo rate rises, bank lending rates tend to rise. When it falls, lending rates should fall. Currently at 6.25% (March 2026). The most important number for anyone with a floating rate loan in India.
RLLR, Repo Linked Lending Rate
A bank's lending rate that is directly tied to the RBI repo rate. Formula: Repo Rate + Bank Spread = RLLR. More transparent than MCLR because changes pass through directly. If your home loan was taken after October 2019, it is likely on RLLR or a similar external benchmark.
Tenure
The duration over which you repay your loan, measured in months or years. Longer tenure = lower EMI but more total interest paid. Shorter tenure = higher EMI but much less total interest. Rule of thumb: keep personal loan tenure under 3 years; home loans benefit from longer tenure due to the tax benefits on interest repayment.