Top News

Bank Loan Rule: When the financial condition is weak, a person applies for a loan. Banks can try to take advantage of this situation. Therefore, you must understand their every move. If you have the right information, you can deal with them carefully and protect your interests.

Let's take an example. A call comes from the bank, "Do you want to take a personal loan? For our valuable customers, we are offering loans at a very low rate of 9 percent. Yes, flat 9 percent per annum." This message is a way to trap customers with false promises and tempting claims. Relationship managers are used by agents of banks and NBFCs to lure naive customers again and again and win their trust.

A personal loan at the rate of 9 percent may seem cheap. But, only a few customers understand that flat rate EMI of interest is not the right way to look at a loan. Each EMI reduces the principal amount. Therefore, such loans should be evaluated on a reducing rate of interest basis.

In reducing rate of interest, the EMI keeps on decreasing as the loan tenure passes. However, this does not happen in flat rate. In fact, the same EMI is paid throughout the loan tenure. Of the two, the first system is beneficial for the customers. But, no relationship manager mentions this.

If the loan is for five years, then 8% flat rate is equal to 15.7% reducing rate. Unfortunately, most customers do not understand this. They are lured with a low flat rate, which easily attracts them, whereas in reality the total cost may be higher.

For customers who understand this, the bank staff has other weapons. Loan processing fee is the most popular among these. It is a small amount, usually 1-2 percent of the loan amount, ranging from Rs 2,000 to Rs 3,000. But, these charges increase the effective rates of the loan.

This method also increases the cost of the loan-
Advance EMI is a trick by which the effective interest rate can be increased. In this, the customer is asked to pay two EMIs i.e. Rs 48,000 in advance. This reduces the total loan amount. For example, a loan of Rs 5 lakh at 14% rate is available at an EMI of Rs 24,000 for two years. If the customer pays two EMIs in advance, the total loan reduces to about Rs 4.52 lakh. This reduces the total cost of the customer.

Why do customers not pay attention?
When people take a loan, they are so worried about the amount to be sanctioned that they do not find it very difficult to pay two EMIs. They do not even worry about it. However, the truth is that the effective interest rate of the loan increases from 14 percent to 16.6 percent due to the payment of these two EMIs. If the customer asks a question, his attention is diverted by saying that the form was deficient, some more documents are needed or some more feature is just mentioned.

The focus is on getting the application signed -
This is the reason why the loan application process is completed quickly. People are not given time to read or understand the clauses given in the loan document. The terms and conditions are anyway written in such a fine font that the customer cannot read it. Overall, the entire focus is on getting the loan application signed.

Lies about insurance-
When you take a loan, agents also earn a commission. This commission increases further by selling insurance. In such a situation, a single premium term plan is also slowly added to the home loan. This policy covers the borrower and pays off his loan in case something happens. The premium payable is added to the loan amount so that the customer does not have to pay it from his pocket. Let us tell you that selling insurance with a home loan is completely illegal.

Of course, RBI allows the bank to protect its interests. For this, emphasis is also laid on insuring the asset and the borrower. But, this insurance can be purchased from anywhere. The bank cannot insist that the insurance be purchased from it. The customer is never told about this rule.

Verbal promises are made-
If the customer is lured into making an expensive purchase, the commission increases. Car loans and add-on features like roadside assistance are promised verbally but not on paper. This makes the customer prone to fraud, and the company's profits also increase.

Disclaimer: This content has been sourced and edited from Hr Breaking. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.