Whether it’s a loan for your company or home, presently Indians are paying one of the highest interest rates on their loans, as compared to other comparative economies .
Over the span of last 2 years RBI has reduced the Repo rate from 6.5% to 5.15%, a whopping fall of 1.35% , sadly this reduction hasn’t been fully passed to the end customer by various Banks or NBFC’s.
Some of us are paying well over the odds, which, in this competitive market, is a massive missed Cash Flow opportunity. Please keep in mind that a rate cut of 0.5% can reduce significant repayment amount, freeing up cash flow for expansion of your business.
In this highly competitive market , the clients can negotiate a better deal on their Interest rate!!
Moreover in the present market situation wherein some of the largest NBFC’s are themselves are under stress, have in turn started exorbitantly increasing Interest rates to their existing customers over the period of last one year.
We have illustrated five different steps on how to negotiate a better interest rate on your existing loans, such that you have that much needed extra cash flow today:
Stage 1: Please ask your bank/NBFC what Interest Rates are they offering to their new customers
Bankers are presently offering Interest rates that are considerably lower than being paid by their existing borrowers (i.e. Lower margin over MCLR) , to lure in new customers.
Please to call your Relationship Manager or Loan Officer and discuss with him that even though being a long term valued customer, you still aren’t being offered in line with the new borrowers.
Discuss and Leverage on your key points , such as :-
- Repayments track on existing loans.
- Your Personal and company credit score – Company and Personal CIBIL score.
- Liability relationship with them in terms of – Personal Savings Bank Accounts , Salary Accounts , Foreign Exchange flows or Investment in Fixed Deposits , Mutual Funds or Life Insurance.
- Friends and family referred for Liability and Loan relationship with them.
Also explain that you are being offered a better rate and services on refinancing with another lender.
If they offer a better deal , fantastic! It’s saves a lot of time on researching , and negotiating with a new lender.
If they still don’t reduce the rates, let’s move to stage two on Researching a better rates with a new Lender.
Stage 2: Researching on Products, Services and Interest Rates offered by other Lenders
Please research interest rates offered by various competitor of your present Bank. You can visit various Bank sites to understand their MCLR, interest rate and services offered by them.
Also in most of the scenario the best rates are offered in person by these Banks, please set up meeting with them and personally inquire about the competing interest rate been offered on refinancing of your existing loan.
Stage 3: Hire a expert Financial Advisor ( Chartered Accountant)
If you don’t have time to personally put in all the efforts required for Stage Two, considering there are more than 10 active banks and 12 NBFCs which are offering different product and services at different price points , then please hire an experienced Financial Advisor ( Chartered Accountant).
Due to their ongoing assignment and active relationship with various Indian and Foreign Banks they can provide you with bouquet of different products, such as Overdraft facility, Cash Credit facility, Factoring, Bill Discounting ( with and without recourse), Term Loan, Machine Loans, Corporate Loans, External Commercial Borrowing (Dollar or Euro linked) at various price points.
Please understand these various products along with their Regulatory Requirement, post which select the best option that suit not only your Present by Future Business Growth and Requirement as well.
Please do also discuss various Add-ons /Freebies such as No/Minimal charges on – RTGS , Import/Export remittance , Foreign exchange Margin, Free Cash and Cheque Pick facility , Lower charge on EDC machines , Salary accounts for the staff and other facilities. They would significantly help to reduce your present Bank Charges as well improve business efficiency.
Stage 4: Final negotiation with your existing banker
If, still your existing Banker not reducing their rates, despite your persistence that a new bank is offering you better rates. It’s time to finally switch Bankers, it may be hassle in the short run but think of the Free Cash Flow that you could save over the next few years.
Stage 5: Repeat the above step on Renewal of the facility
Although you’ve negotiated a better rate now and are satisfied with your present loan situation– but don’t fall into the “set and forget” trap.
Keep a note on the latest promotions being advertised with Bankers, and revisit the above mentioned steps every 12 months before Renewal or Review of your loan facility.
Remember that as your Financial performance improve in terms of – Turnover , Free Cash Flow , Profitability ratio , Leverage and Gearing Ratios combined with your improvement in your company rating and CIBIL score you your power to negotiate is strengthened.
Hope this article would help you to reduce your present interest rate !!
CA Meenu Kapoor, is a practicing Chartered Accountant. She has over 15 years of experience in finance and taxation domain. She specializes in financial control, fund raising, audits, tax planning & statutory compliances. She is having a versatile corporate experience in various sectors. The author can be reached at 9871051046 / email@example.com.