There are two ways to deal with differential rates. You can switch the loan to a bank offering a lower rate. This is easy as pre-payment penalty on floating rate loans has been abolished. The new bank will charge only a processing fee of 0.5 – 1%* of the outstanding loan. Some banks may even waive the fee if you bargain hard.

Another option is switching to the lower rate being offered to new customers by paying a small fee. Most banks offer this facility to retain customers only on demand or when they show willingness to shift to another bank. That is why many customers are not aware about this. Not all lenders allow switching to a lower rate. Some instead reduce the tenure of the loan.

The benefit is the interest savings you make on swapping your loan. The size of the benefit varies with the amount of loan outstanding (the higher the amount, the more you save), remaining term of the loan(longer the term, higher the savings) and the interest differential(bigger difference, more savings).


For floating-rate borrowers, switching lenders has become easier since the abolition of pre-payment penalties. Also, many banks reduce or completely waive off the processing fee someone with a good repayment record. That perhaps explains why everybody thinks about shifting to a new lender every time there is hike of reduction in interest rates. However, expert don’t think it may be at the best strategy at this juncture.

 NOTE - *Indicative, may vary.