Taken for a ride by loan sales executive? Read and never fall in the trap again

Abhas Kumar got a call from a loan sales executive from ABC Bank. The caller asked Abhas if he was interested in a home loan. She said that the bank was offering loan at an attractive rate of interest.

Incidentally, Abhas had been planning to own a house for long. When he asked her about his loan eligibility, she enquired about his salary details. Abhas was informed that as his salary is Rs 60,000, he could get a loan equal to 60 times his salary (Rs 36 lakh).

Abhas was convinced that his dream home was just a few signatures away. However, when he reached the bank, he was informed that his loan eligibility was way below the amount projected by the executive. A dejected Abhas decided to shelve his home loan plan for the time being.

There are many like Abhas who are exposed to misinformation. Therefore, it is important to know the traps and avoid them.

Know the trap

We all know that loan means business for banks and they make every effort to lure customers. It is the job of the loan executive to convince a customer to buy a loan. A phone call or a meeting with a bank loan executive is akin to going through an advertisement of a product in a newspaper or television. If you believe claims without cross-checking facts, you may have to pay a heavy price for it.

The information provided by a bank executive may be sometimes misleading that may result in wrong decisions on your part.

How to avoid the trap?

As a borrower, you must be able to differentiate between credible data and misinformation. Here are a few points to know before you avail the loan:

Compare and research: Chalk out your requirements and carry out a thorough research of all available options. Go through newspapers and TV ads, carry out online research and scrutinize every piece of information you get. Always cross-check the claims made by loan executives.

Beware of suspicious institutions: The more attractive the loan scheme, the more cautious you need to be as a borrower. Easy loan may sometimes mean higher rate of interest (ROI). As there are no free lunches, try to find out where the lender is making up for the freebies it is doling out.

Look for hidden charges: If Bank A is giving loan at 10.5 per cent ROI and Bank B at 10 per cent, the latter must be covering for 0.5 per cent through hidden charges, processing and prepayment fee. Look for hidden costs to avoid unpleasant surprises.

Rate cut not always beneficial: Every time RBI cuts rate, banks may not be diligent enough to extend benefits to borrowers. Some banks do not pass the benefits to old borrowers. If you are repaying loan on a higher rate, you should switch your loan to a lower interest rate.

Is fixed rate really fixed? Borrowers tend to believe that fixed rate means that the rate of interest will remain the same throughout the tenure. However, banks insert a reset clause which enables them to review and revise ROI after a fixed duration.

Interim security: In case you are taking loan to purchase a property, you will get the title deed in your name after nearly a month of registration. As the loan remains unsecured during the interim period, banks ask for another property as collateral. This could be a tricky situation for the first-timers. In such a case, they have to look for a guarantor.