In today’s complex financial landscape, businesses often rely heavily on borrowed capital to meet their goals. Whether it’s a working capital loan, a term loan, an overdraft facility, or non-fund based limits like Bank Guarantees and Letters of Credits. Enjoying limits from banks has become routine and most important factor for entities on growth trajectory. But what’s not routine for most borrowers is the habit of reviewing their loan statements carefully—especially the interest charged by banks every month. Overlooking this crucial aspect can lead to silent financial leaks and missed opportunities to take control of your finances.
At Bankkeeping, we have identified many reasons for these Discrepancies, and here’s why regularly checking how much interest banks have charged is not just important—it’s essential.
Check Interest Regularly
Errors Can Happen
Banks handle hundreds of thousands of transactions daily. Despite the best systems and processes in place, errors can and do occur. These might include:
– Misapplication of interest rates
– Incorrect calculation of interest on part-payments
– Failure to reduce interest after a rate cut
– Charges being levied on days where a prepayment was already made
– Taking wrong base rates
– Taking and calculating through wrong spreads
By reviewing your loan statements monthly, you are more likely to spot inconsistencies and raise them before they snowball into larger issues. The earlier an error is detected, the easier it is to get it corrected. We have also understood that once a Financial Year is crossed, it becomes very difficult to get the excess interest charges reversed.
Interest Rates May Change Without Your Notice
In floating rate loans, interest rates are linked to benchmarks like the repo rate or MCLR (in India). When the central bank changes policy rates, your bank may revise your rate. But banks are not always proactive in informing customers—or you may miss the update. This means your interest burden could silently rise without you noticing. Many a times Banks do not automatically pass on the benefits to the customers when the benchmarks go down. Unless you locate this and understand this, there are high chances that you will miss on reduced interest rates for significant amount of time.
By checking the monthly interest charged, you can back-calculate the effective rate you’re being charged. If the rate seems higher than expected, it’s time to reach out to your banker and ask questions.
Calculate Working Capital Limit’s Interest Properly
In overdraft or cash credit accounts, the interest is calculated daily but charged monthly. This interest can vary wildly depending on usage. Many businesses forget to calculate this properly. So many of them do not understand how the interest charged by the Banks are calculated. At Bankkeeping, we have the system to rightly calculate this month on month.
Banks Don’t Always Highlight It Clearly
Loan statements from banks are often not the easiest to read. While they show the EMI debited, the actual breakup—how much is principal and how much is interest—is often hidden deep inside. In overdrafts and working capital loans, interest charges may not be visible until the end of the month, and even then, without context. Unless you actively look for this information or extract it yourself, you might never truly know what you’re paying. A specialised software or service helps in actively understanding the Bank statement and realising how much is being charged and where its being charged.
Details are hidden inside complex and lengthy sanction letters
Sanction letters are long 20 – 30-page document and are often complex to read and understand. There are various Penal clauses and charges and associated penal interests for wide ranging issues. These may cause excess interest to be levied. Unless timely identified, an organization may keep paying them over a prolonger period of time.
Prevention of Interest on Interest
Many borrowers make part-payments or early payments to reduce their interest burden. However, unless the bank correctly credits these payments and recalculates the interest, you may end up paying interest on a higher-than-necessary principal.
Monitoring monthly interest helps catch such situations where the benefit of prepayment hasn’t been passed on correctly.
Also if Banks have charged excess interest, remember the same gets added to your Credit Balance in Cash Credit Account and you pay interest on top of those erroneous interests.
Better Negotiation and Loan Management
If you regularly track how much interest you are paying, you are in a much stronger position to:
– Renegotiate better terms with your existing bank
– Compare with other banks’ offers and switch if needed
– Take timely action like partial prepayments or refinancing
Knowledge of actual interest paid equips you with leverage. When you approach a bank with clear data showing how much you’re paying and what rates you’re getting, you gain credibility and bargaining power.
Compliance and Auditing
For businesses, loan interest is also a critical component of financial audits, income tax filings, and internal compliance. Discrepancies in bank statements vs books of accounts can trigger queries or penalties.
Regular monthly tracking ensures that what’s recorded in your financials matches what the bank has charged. It also provides documentary evidence in case of disputes.
Conclusion
Interest expense may seem like a fixed, unavoidable cost—but in reality, it’s dynamic, negotiable, and manageable. The first step toward managing it is understanding it. And that begins by checking how much interest your bank has charged you each month. This needs to be a disciplined monthly ritual—and not a one time annual or random exercise. The dividends it will pay in the form of savings, insights, and control are well worth the effort and the
cost.
At Bankkeeping, we not only understand the true cost of interest but also ensure that organizations are only paying what is due to Banks and not more. Through our proprietary algorithm, we not only calculate the true cost of interest but also identify the exact amount of excess interest charged by the Banks. Our service team, then helps the organizations to recover the excess charges through a system oriented follow up procedure.