Scenario: Existing Banker is charging interest @ 10.15% and the offer from the new bank is interest @ 8.15%. Confusion is that whether to change the bank account at this point of time. We used Cartesian Coordinates to arrive at the decision.
Theorem: What would happen if I change the bank.
- I have to pay interest of Rs. 10L to the existing bank upfront.
- I have to pay processing fees of Rs. 1.5 L to the new bank. Other charges of 1 L
- I would get interest benefit of 2% per annum (appr: 4 L)
- Margin on stock and book debt shall remain at 75% level. New bank shall deny to increase it.
- New bank may deny the emergency line of credit of 20% outstanding announced by GOI.
- Existing banker may charge pre-closure charge of Rs. 6 L
Inverse: What would happen if I didn’t change the bank.
- Shall get moratorium to pay interest of 10L from October 2020 to March 2021 in installments.
- Shall save on the processing fees and other charges of Rs. 2.5L
- Existing bank may lower the interest rate as per announcement by Government of India.
- Margin on stock and book debt increased to 100% level, hence higher Drawing Power.
- Shall be eligible for Emergency Line of credit of 20%, thereby increasing liquidity of the organization.
- Save time, legal expenses and mental harassment fighting with existing bank for reversing the pre-closure charges.
- May get extra benefit or emergency fund, since relationship is more than 7 years.
- We have to pay 2% pa extra interest.
Non-mirror image reversal: What wouldn’t happen if I didn’t change the bank.
- Interest reduction will not happen
- Don’t have a pay the processing fees and other charges
- Cash crunch will not happen
- Drop in drawing power will not happen.
Converse: What wouldn’t happen if I change the bank.
- 20% Emergency line of credit will not happen
- Margin on Stock and book debt increase will not happen.
Decision: To stay with the current bank and request them to reduce the interest rate.
Also read: How your past can affect your future with the decisions you make today
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