Buyer’s Credit is most important for the credits availed by the buyer or importer from foreign lenders in India from the banks and financial institutions for the payment. Normally, the overseas Banks would lend the amount to the buyer only with appropriate Letter of Undertaking or Letter of comfort that is issued by Buyer or Importers Bank. Consultant coordinates or Importers Bank between the importer and overseas lender also rearranges the credit for issuing the Letter of Undertaking or Letter of Comfort based on the certain amount of the fees. Normally, local sources funding will be quite expensive and the Buyers credit also helps the importers to easily avail the fund at the cheapest rate and it is quite close to the LIBOR. Buyer’s Credit offers the detailed information on the total cost such as Interest cost, forwarding booking cost, LIBOR, low charges, arrangement fee and much more in an efficient way. Availability of the funds could be calculated based on sufficient funds available for the required amount of the transaction in the much more secure way. LIBOR + Margin Rates are calculated for the Buyer’s Credit.
Features of Buyers Credit Rate:
Buyer’s credit rate is the short-term credit that is available for the importer from the overseas lenders like the Banks as well as other financial institutions based on the goods suitable for importing. Buyers Credit Rate gives major access to the instant quotes for the finance. In fact, this aggregation model offers the complete competitive quotes that are suitable for enabling more benefits for the buyer. Quotes based on the multiple lenders could be the accurately known in the different time zones. Overseas banks normally lend the buyer or importer the amount only based on the letter of comfort also called as the bank guarantee which will be issued by importer’s bank. Buyer’s credit consultant or importer’s bank charges the extra fees called the Arrangement Fee. Nil arrangement of the fee is due to the expulsion of the intermediaries. Exporters would get paid on the due date so that the imported would also get enough time to make import payment. Buyers Credit Rate helps the importer to avail foreign funding at the much cheaper rate when compared to the local funding. Using the Buyer’s Credit Rate, the importer could negotiate a better deal with exporter based on the immediate payment.
Tenure and Cost of Funds:
Cost of Funds is calculated based on the rate based on the banks borrow the funds from the local market and is calculated as the (L + X). Depending on the choice of the customer, funding currency could vary based on the FCY such as USD, GBP, JPY, EURO and more. Based on the choice of the customer, it would be quite easier for enabling complete benefits. The importer also uses the Buyers credit financing according to the form of the trade like open account transactions or LC / Collections. Tenure of which funds are borrowed will be quite similar in much more accordance with the credit rate.
As per RBI Directives on LoU based funding , Buyers Credit is currently not available at the moment.