Mostly everyone takes a loan in their life at least once. Even the super-rich Ambani’s have taken loans worth crores. The problem is that almost everyone makes mistakes while taking loans due to lack of knowledge. I remember the time my uncle had to go to bank multiple times to get a home loan approved. He also had to pay some bribe to the manager to get the loans passed even when all documentations were correct.
I too did some mistakes with my first loan which was a car loan. Another incident happened with my friend who after 4 years came to know that the interest he had been paying wasn’t on a home loan but a closely related product. Hence he wasn’t able to claim income tax benefits nor was he able to get benefits when loan rates reduced.
Let’s see how we can escape from these frauds:
Compare
You approach your bank where you have an account whenever you need a loan and tell them your requirements. The executive will listen to you calmly and then he will suggest some product which he says is customized for you and he will also throw in a special loan discount or processing charge wavier for you. Not thinking any further you just take it. There lies the problem. You didn’t compare. You should approach at least 3-4 banks and check for the best rates. You don’t need to go to banks. You can do it online on websites like paisabazaar.com and get the best rates. Some banks may ask for extra documentation or charge some extra processing fee. But you should target on the final result.
Suppose your own Bank gives: 8% with 0 processing charges and 0 documentation
but another Bank X gives: 7% with 10,000 as processing charges and some extra documentation
then go for that Bank X if you are taking a larger loan for a longer duration. It will surely be cheaper in long run.
Understand Rates
This is related to my previous point itself. You should understand the rates. This fraud normally happens when you go to buy a car. The agent will be selling a 9% car insurance from a bank. At the same time, he will also be having another product that gives 6% car loans from finance companies. Of course, 6% is less than 9% but the difference lies in the fact that sometimes loans sold from finance companies are at flat rates, but loans from banks will be at diminishing rates. 6% flat over a longer duration larger amount will be much more than the 9% diminishing. Also, remember the fact the car salesman is making commission while selling you a loan.
Understand the terms
Preclosure, Prepayment. Yes. you need to understand all the terms. I have seen my friends struggle to pay a 12% education loan as they have no option to pre-close it. Everyone suffers loss not asking the right questions. Ask the right questions. Read the terms and conditions.
Bargain
The last one has to be a bargain. The manager of that branch or the executives you are dealing with has the option to provide you with cheaper rates. The higher the rates, higher is the commission they are getting. Yes, you can bargain for better rates. You just need to tell them the other bank is giving cheaper rates.
Finally, I just want to summarize if you have good CIBIL score you get better rates. Don’t stick to your personal bank thinking it will be easy to manage everything together. It’s just a loss for you. Apply online and executives will come to you. Banks are eager to give loan to trusted people to make money to pay interest and salary. Ambani’s loan rates are much cheaper than you and whenever he needs a loan there would be bank managers queuing outside his office.
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