GST is certainly working its magic on interest rates for different types of loans. Owing to the decreasing interest rates, loans are becoming less expensive day by day. Banks had started this reduction drive a while back with a decrease in rates for savings and FD accounts and are now extending this to the loan rates as well. Recently, a decrease of 25 basis points was seen in RBI’s lending policy rate.
However, mostly the benefit of this reduction drive is availed by the new customers only and the existing customers carry on with the previously decided high interest rates. So, the question that pops here is that how can existing customers reduce the rate on credit cards, home loans as well as personal loans.
The interest rates on credit cards can at times be as high as 40% p.a. but there are ways you can avoid this higher rate –
Negotiate with the bank
Try and talk to the bank and negotiate with them for a lower rate however the bank will agree only if your past dealings with the bank have been good and if the banks perceive you as a good borrower. It’s advisable that you go to the branch and submit a formal request in writing. It may take weeks before you get an answer.
On the off chance that your lender replies in negative you can also avail the bank transfer facility and get the money transferred to another card wherein you have a lower interest rate simply by filling out the paperwork and providing the details.
There are 2 kinds of balance transfer facilities that can be availed –
i. Fixed duration i.e. you get a limited duration say 3-12 months for paying your dues and another is for lifetime duration along with a lower interest rate ranging between 0.80% to 9% p.a.
ii. Lifetime duration option i.e. you get a lifetime to pay back your dues however the interest is around 12-24% p.a. which is much higher than one provided under fixed duration offer and is slightly lower than the ones provided by your previous credit card company.
However, its necessary to be careful with your credit card transactions because balance transfer may solve your problem temporarily but being wary of all your transactions will help you in the long run.
Getting a lower interest rate on your fixed rate personal loan is a herculean task so there are 2 options available to you – one is shifting to some other lender and second is to obtain a loan by pledging an asset. The first option is of shifting to another lender however this is an expensive proposition as you will be required to pay 2-5% of the outstanding loan amount as pre-closure fee.
Another option, the more economical one is taking a loan against an asset or pledging an asset. However, there is no strait-jacket formula to determine which option is better for you and varies from case to case.
Even though banks adopt every trick in the book to prevent the customer from getting a lower interest rate however if your lender allows you can also try and get the amount of the EMI per month increased so as to reduce the time duration of the loan.
In your quest to get a lower interest rate for a home loan, the only thing that can help are your bargain skills. The same thing as mentioned under credit card section needs to be done first of all is to negotiate and talk to your lender, haggle with him so as to get a better interest rate on your existing home loan. The lender might agree if you have been paying your EMIs on time. However, if he refuses then you can look for another lender who is willing to give you a rate that is at least 100-150 basis point lower than your current rate. Even if the previous interest rate was 10.15% and the new lender offers you 9%, that’ll save you a substantial amount of money.
Usually you get a better deal during the initial stages of the loan i.e. when you’re paying your dues towards the interest component then later on when you are repaying towards the principal amount.
An important pointer for those who had gotten a loan before March 2016 is that if you haven’t switched chances are that you’re still on your base rate so it’s better to switch to the interest rate based on MCLR or the marginal cost of funds which owing to its pre-determined reset clause is more real time. Anyone who obtained a loan after April 2016 is already on the MCLR.