Letter to bank for concession in interest rate (1) letter to bank for increase the limit facility (1) letter to bank manager (2) letter to bank manager to honour cheque (1) letter to bank requesting sms alert service (1) letter to builder for possession (1) letter to complain about an inaccurate meter reading (1) letter to customer (1). This letter is my formal written request to reduce the rate of interest to six percent (6.0%) for the above referenced account. I am currently serving on active duty with the Branch of Armed Forces.
Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). She writes “To Her Credit,” a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.
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Dear To Her Credit,
I have heard numerous times that if you have overall good credit, you should ask your credit card company to lower your interest rate. What is the best way to go about this? Is it likely they will lower my rate or should I even bother?
— Amanda
Dear Amanda,
Yes — you can just ask for a lower credit card interest rate, especially if you have been diligent about making all your payments on time. In fact, I did it myself. Here’s how!
We have three cards, so I decided to see if I could ask for and get lower interest rates by making a phone call. The customer service representative at the first bank told me he had to talk to my husband Gary because he’s the primary cardholder. Fortunately, Gary was home. The rep told Gary he could lower the rate by 1.75 percent, to 17.99 percent — the prime rate plus 12.74 percent. He said, “That will get you started in the direction you want to go.” He said we could call again in six to eight months and get it lowered again, but 1.75 percent is the most they’ll lower it at one time (1.75 percent may not sound like much, but if you carried a $5,000 balance, that could save you about $90 a year.)
That was easy! I called the next one, which is in my name. I listened to bad music for about 20 minutes and finally got a representative. When I started to say I’ve had this account for 10 years, she broke in, “I know what you’re going to ask. You want a lower interest rate.”
“Yes,” I said. “I wondered if you had a better rate or a different plan.”
“You already have the lowest rate,” she said. “In fact, it just went down from 20.15 percent to 19.15 percent.”
“So there’s nothing you can do?”
“No, but you can speak to a supervisor.”
She transferred me to a man who said the same thing — I already have the best rate. He added that it’s 10.19 percent over the prime rate.
Off the phone, I realized that the prime rate has not been 9 percent (19 percent minus 10 percent) in some time! I called back and talked to a third representative — a friendly woman with a Southern accent. I explained that my rate is supposed to be prime rate plus 10.19 percent. The prime rate is currently 5.25 percent; therefore, my rate should be 15.34 percent, not 19.15 percent. She said the prime rate was almost 9 percent the last time they changed the rate a year ago. She said store cards don’t follow the same rules as regular bank cards. She added, “Everybody knows store cards have higher APRs (annual percentage rates).” I didn’t think everybody knew that. She said, “Well, they should!”
This was taking more time than I expected, mostly because of long hold times. I found the statement for my third card and discovered the interest rate was 1.9 percent. I can live with that. No more phone music today!
In summary:
• It’s easy to ask for lower interest rates, but it takes time. Call when you have at least half an hour per card.
• Before you call, know the current prime rate.
• The primary cardholder probably needs to be there.
• Some cards have more leeway than others. Store cards and cards that give perks might be less flexible.
• If you don’t get what you want, write a letter. I still think my department store card rate is too high, but rather than talking to a fourth person, I’ll write. More importantly, I’ll pay that card balance off every month from now on. They can make the interest rate as high as they want, but they can’t make me carry a balance!
• Call the bank again in six months or a year and ask again, whether you got a lower rate or not.
Go ahead and call your credit card companies! Listening to phone music for most of your lunch break may be a small trade for paying less interest on your credit card balances.
See related: Credit card etiquette: How to politely win when credit card disputes arise, 6 credit card terms you can negotiate and change, 4 tips for negotiating for better credit card terms, Want a lower rate? Just ask!
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If you are an existing home loan borrower, then the following options can help you in reducing the high interest burden.
If bank is the lender
One-time switch to MCLR: You can switch from a base rate to MCLR or marginal cost-offunds based lending rate. The latter is more dynamic as it is directly linked to repo rate and allows you to enjoy the change in interest rates faster. “In the current cycle of lower interest rates, it makes sense to shift to MCLR as a downward change in repo rate will lead to lower MCLR,” says Anil Sachidanand, MD & CEO, Aspire Home Finance. However, the opposite also holds true. “In case of an upward surge in rates, the increase will be passed on to borrowers faster,” he adds.
There is also a cost involved. Banks charge a conversion fee of around 0.5% on your outstanding loan amount, plus taxes. For instance, if your home loan outstanding is Rs 20 lakh, the conversion fee would be around Rs 10,000, plus taxes. Most importantly, switching to MCLR is a one-time option, you cannot revert to base rate again. And once you choose an MCLR rate, you cannot reset it for the next one year.
If loan is with NBFCs
Reset to a lower rate: The MCLR system doesn’t apply to housing finance companies (HFCs) and non-banking financial companies (NBFCs). So, if you have taken a loan from either, you can reset your interest rate by paying a conversion fee.
HFCs and NBFCs usually do not change the base or BPLR rate, they change the spread, which results in an overall reduced rate (actual interest rate = base rate +/- spread). For instance, a lender with a base rate of 16% and a spread of -6%, will allow you to change your spread to say -7%. This would result in a reduced rate of 9% [16% + (-7%)] than the earlier 10% [16% + (-6%)]. The conversion fee will vary from lender to lender. Also, unlike with banks, you can reset your interest rate any number of times.
Once you opt for a reduced interest rate either with banks or NBFCs, you have the option of maintaining the same EMI or lower the loan tenure and vice versa. In case you choose the option to lower the EMI, you would be required to provide new ECS mandate/post-dated cheques.
Cost-benefit analysis
Before taking the plunge, calculate the total cost you are incurring to reduce your interest rate, and the savings you are making in the process. If the fees are higher than the savings, it doesn’t make sense to switch or reset. Account for the total cost—conversion fee plus taxes. Look for at least 25 bps difference in interest rates.
Also, consider the remaining tenure of your loan. “When the balance tenure is only a few years, it is not advisable to switch/reset as the bulk of the interest component would have been paid and EMI would constitute mainly the principal,” suggests Rishi Mehra, Founder, Deal4Loans.
Next, check on the spread being offered by the lender. “Lenders can’t lend below MCLR or base rate, but if you have a good credit history and track record, you can negotiate on the spread,” says Mehra.
You also need to look at the charges. They vary from lender to lender and can be negotiated.
Refinance options
If the deal with your existing lender isn’t lucrative, you could consider refinance or balance transfer option. However, it is a lengthy process. It is like getting your loan approved all over again. Refinancing can be costly too. Various fees of the new lender can be up to 50 bps of the loan amount and then there is the mortgage fee plus taxes.
“If the processing and transaction fee is less than the savings on the interest rate difference (between existing and the new lender) for one year, it makes for a case to switch to a new lender,” says Devang Mody, President, Consumer Finance, Bajaj Finance. “If there is a minimum difference of 75 bps between the interest rate offered by a new lender compared to existing lender, refinancing makes sense. That too only for loans with residual tenure of more than 7-10 years,” says Sachidanand.
So the choice between refinancing, switching or resetting a loan rate depends on the outstanding amount and tenure, the difference in rates and the amount of time you have to get the job done. As interest rates may not remain low for ever, make the most of current low rates.