Sukanya Kumar - RetailLending.com
After recent drop in the repo rate by the central bank, several banks have reduced their base rate, such as- Kotak Mahindra, ICICI, Axis and Citibank. However, sometimes you feel that your loan rate isn't reducing when the lenders seem to be reducing rates for all others. You wonder- 'Why?' The truth is, you will never know for sure. But I am listing down the possibilities here for you through some case studies, which might help you identify with yours.
1. It is a fixed rate you have opted for:
Shyam Bihari was in a hurry to pay the builder immediately after the purchase. There was an urgency from the sales executives of both lender and builder. In a way it was good as his loan got done smoothly. Shyam was always busy with office work- late hours, weekend conferences, tours etc. These had taken away most of his time and he was under stress. He had no time to read the loan application form and sanction letter from the lender and even the sale agreement of his flat and lastly the loan document that he signed. As a result, the application got logged, sanctioned & disbursed under 'fixed' scheme, which he was completely unaware of. When he realised that his loan rate isn't going down at all, he enquired and discovered it !
2. There are issues in your repayment:
Sumati Narayan bought a small two-storied house jointly with her brother ten years ago in Mysore. Two years ago her brother moved out to stay with his immediate family and since then stopped contributing to the bank's EMI. When the loan was done, her income was more than her brother's and she became the first applicant and the monthly EMI was going from her account. She never apprehended this situation and now started defaulting due to lack of funds. No wonder she isn't getting the benefit of rate reduction. She can't even check with the lender given the current situation.
3. Yours is a difficult loan and not easy to switch. Your lender did a lot of structuring while extending the credit to you, hence the margin they kept is high:
Nick(Nikhil) Barucha is an architect who is passionate only about his work. He never bothered much about his bills, payment receipts, tax return filing. One day he had to buy a home for his aged parents in hometown and all lenders declined even looking at his application! Through a banker friend of his, he managed to get a home loan, but with high fees and high rate of interest with lock-in conditions. No way his rate is going to go down!
4. The lender hasn't reduced their base rate(Banks)/prime lending rate(NBFC):
All lenders keep their borrowers attached to a base rate or prime lending rate with a margin. Dilip Banerjee had no clue about what was it all about. He always thought, that is the petrol price is going down and inflation is reducing then why will my loan rate not go down? Understanding the logic for rate reduction was important, which no one at the inception did explain to him. Banerjee's first home loan remained at the same rate from 2013 to 2015, though he borrowed from the lender every one said is the 'best'! Other lenders reduced base rate and his friends' rates went down though.
5. You have asked for a reduction mid-term when it wasn't scheduled. So, during the scheduled cut, yours may have not been done.
Rajit Neogi felt hostile when his colleague borrowed at a 50 bps lower than him from the same bank. He immediately called the bank demanding the same reduced rate. His reason was justified-"How can the same bank offer lower rate to my friend, keeping me at a higher one?" The bank kept the matter unresolved for some time and then upon being threatened by Neogi that he will switch to another lender, took a fee of 25,000/- plus taxes and reduced his rate too. But what is this now! There is a rate cut when everyone's rate went down and his remained the same! He frantically called the call center, but did not receive any proper justification for that & trying to find out time to visit their branch to seek one.
Now...... my dear readers, it may not be so that all lenders will act as above. Some of them may not even practice any of the methods. However, point #4 is true for all lenders. Please use your discretion before you judge your lender. They are here to do business of lending and earn interest. But from the borrower standpoint, there will always have to be a clarification if the rates are not being reduced.
If you do not receive that support from your lender, do not wait and switch your loan to another who cares for your business. But of course, after giving a chance to your lender to justify.
Happy Borrowing!
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