Negotiating The Interest Rates With Banks In Canada
The interest is a price which a borrower pays for the money he gets from the lender. If you deposit or invest your money in any of the banks’ instruments, you are paid the interest. However, if you borrow the money from the bank, it charges you the interest. Interest Rates Bank Canada are vital instrument of monetary policy controlled either by the government or the central bank. These are regulated from time to time to control inflation and unemployment levels. If interest rates are reduced, there is a greater credit off-take from the banks. This is done to fuel development. But, it could also mean that the depositors will get less interest. On the other hand, if these are hiked, the crunch is applied to the excess credit infusion into the market. It acts as a control to tame inflation. But, this could also result in greater interest payments to the consumers. So, a balanced and well-considered approach is adopted while changing the bank rates.
Types Of Interest Rates Bank Canada:
- Nominal vs. Real Interest Rate: Nominal rates refer to the total amount of money payable. Whereas, the real interest rates measure the purchasing power of the interest receivables. In this, the inflation is taken into account and nominal rates are adjusted.
- Yield vs. Interest Rate: The interest rate is the one that is paid on a financial instrument and is calculated by applying the rate to its face value. To calculate the yield, the interest amount is divided by the price paid for the investment, and the time period for which it is held.
The banks give interest on different financial instruments which the customers choose as per their requirements. These could be the savings account, fixed deposits, insurance policies, etc. Similarly, they charge interest on the advances that they provide. These could be the loans of different nature like personal, housing, automotive, commercial, etc. The banks’ earnings are a difference of the two. The central bank of Canada, like the central bank of other countries, maintains a band of interest rate whose upper level (called Bank Rate) is the overnight lending rate for the loans and the lowest level is the interest paid on cash deposits. The middle level is Overnight Target rate.
How To Negotiate The Interest Rates Bank Canada?
It is very difficult to negotiate with the banks on changing their usual Interest Rates Bank Canada, especially if you are not their preferred customer. Nevertheless, you can convincingly put forth your viewpoint.
a) If you want to take a loan, you shall enquire what interest rates are charged by the banks. However, the lower Interest Rates Bank Canada are not the only criteria. You shall check the ease of operations and the facilities provided by the bank like:
- Prepayment Penalties
- Cash back facility
- Procedures and documentation.
These also form the points of negotiations to lower down the Interest Rates Bank Canada. Normally, the banks lend at more than the PLR. You can prove them that your purpose will not be served if the interest rates are not lowered. You can also tell them that you are not one of those who take loans first and do not think about the monthly installments. You can also tell them why you are looking at that very bank for the loan and how their interest rate is a big hindrance is sealing the deal. If the banks do not lower the same, you can ask them to provide interest-free lock in period. In case your interest charge is increased after you have availed of the loan, you can ask them to increase the tenure instead.
b) If you wish to have a bank credit card, you must check which ones offer the most flexible repayment facilities and whether there are any undisclosed charges. The default on the payment on due date carries exorbitant charges to extent of even 26-30%. You can always ask them to check your credit and repayment history to prove that you will never default on payments.
c) However, if you want to make deposits in any instrument which offer varied options on Interest Rates Bank Canada, you can ask the banks to provide the highest rate.
It is important to note that the tone and tenor has to be very rationale and pragmatic while negotiating. A threatening tone could be counter-productive.