Effective 2nd January 2015, our country's main reference rate, the Base Lending Rate (BLR) will be replaced by the Base Rate (BR).
Why BR is replacing BLR?
• The BLR has become less relevant as a reference rate for loan pricing
• The BLR is quite complex to a few, leading to consumers finding it difficult to make an informed decision
With Base Rate as the new system, it results in a new system of pricing that is more efficient being used by the banks on their loan products based on the banks' capability.
When will BR come into effect?
• BR will be effective for those applying for new loans or refinancing AFTER 2 Jan 2015.
• To the existing loan borrowers, don’t worry, it DOESN’T apply to you.
Your loan rate will still follow the existing terms and conditions until full loan or financing settlement or up to renewal, respectively.
Well, now you can start making comparison between various financial institutions and choose the best lending rate for your new loan. You may want to consider refinancing your existing loan package if the new Base Rates have better interest rates than your current one!
What is good about BR as compared to BLR?
• It will promote transparency to the banks' efficiency and discipline adding to the market competitiveness, resulting in a more attractive rate to consumers.
• As for BR, even if there is no changes, it can be reviewed and fluctuate anytime to reflect such changes in the overnight policy rate (OPR), as it depends on the bank's cost of funds and liquidity factors.
Don't forget other factors like Statutory Reserve Requirement (SRR) are among others being set by BNM.
Calculation of Effective Lending Rate
Effective Lending Rate = Base Rate + Spread
Base Rate = Financial Institution’s Benchmark Cost of Funds + Statutory Reserve Requirement (SRR)
Spread = Borrower Credit Risk + Liquidity Risk Premium + Operating Costs + Profit Margin
Read More : http://MyFinance.com.my/
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