Caution@Bank/HFC
A) Pre-Loan Finalisation
1) Avoid Banks/HFC which will not give the List of Original Documents (LOD) upfront
This document is as important as your sanction letter, or we would say more important than your sanction letter. This document called the LOD (List of Original Documents) is the acknowledgement given by the bank/HFC enlisting all the original documents that you have submitted to them. These documents include sale & construction agreement, sale deed, any other prior deeds, Khatha Certificate, Khatha Extract, Tax Paid Challan & EC. Whatever originals you handover to the bank you should get an acknowledgement immediately across the table.
At a later point in time if the existing bank or HFC tries to charge you higher than what was promised or charges you for something which was not disclosed earlier then the LOD is the document which will help you move your loan to another bank.
A lot of Bank/HFC’s will purposely not issue this document immediately and you will have to apply for it separately. Our experience says you will end up applying for it only when you decide to move out your loan to another bank.
The Bottomline: Avoid taking loan from banks or HFC’s which are not giving this LOD immediately on submission of the original documents.
2) Avoid Banks/HFC’s that are not offering online pre/part payment facility irrespective of the amount that you intend to pay
We are aware of a full-fledged bank with all online access for their banking service, but they will not give access to make part payments online to their home loan customers. Imagine, every time you have to write a cheque and go and deposit it in one of their branches. Our experience in this business tells us that most customers will postpone this to a Saturday. Most of the banks now work only on alternate Saturdays. So even if you have money on let’s say a particular Monday you may not be able to deposit money until Saturday or perhaps the next Saturday.
If you were planning to make a payment of 1 lakh on an outstanding of 50 lakhs. This delay will let the bank charge you the home loan rates for an additional 1 or 2 weeks for this amount of 1 lakh which you could have easily paid online.
Imagine they do it for so many customers across the country.
The Bottomline: Avoid such banks and Housing Finance Companies where you can’t check your home loan details online immediately after the loan account creation and can’t make part payments online.
B) Post Loan Disbursement
1) Offer rate different from actual account opening rate
You need to have access to your home loan account online and immediately check if the rates mentioned there are the same as that mentioned in your sanction letter. If you find any discrepancies, get them rectified immediately.
Eg: If rate offered is 8.6% and the same is mentioned on the sanction letter, however when the account is opened the rate mentioned will be 8.75%
It could be on account of the following
a) Human error – The manager or the officer makes a mistake while opening the account. It should be and will be immediately rectified by most Bank/HFC’s.
b) Error with ulterior motive – We are aware of a HFC which will promise you a lower rate and open account with a higher rate. For eg: they will promise 8.6% and open the account with 8.85%. When you confront them, they will say while the property is under construction the rates will be 8.85% and then we will bring it down to 8.6% once the registration is done. This point was never told to the customers earlier. Completion of the project could be 3 years away and you will be stuck with them at higher rates.
Similarly, for plot plus construction they will promise a lower rate upfront and charge you higher. When you confront them, they will say when you start construction, we will lower it and when you actually start the construction they will say when the construction is completed, we will lower the rates.
c) System Error - On most occasions, banks and HFC’s will try to hide behind this poor lifeless guy called “Mr. System”
The Bottomline: Verify your interest rates online on the day of account opening/first disbursement and check if it’s the same as that mentioned in your sanction letter. If not, get it rectified immediately. Once the rectification is done, please ensure the revised EMI as per the revised interest rate is reflecting in your loan account.
2) Commencement of EMI’s on time
Your Pre EMI or your Full EMI must start on the agreed upon date. If Bank/HFC’s do not activate your EMI or Pre EMI collection on the agreed upon time, it’s you who has to be worried and not the Banks/HFC’s.
The worry is on two counts
a) Negative Reporting to Credit Agencies – The bank system picks up your repayment record and reports it to the credit rating agency on a monthly basis. Even if it’s the bank which has erroneously not commenced your EMI/Pre EMI it’s your score which will get negatively impacted.
b) Additional Interest Charges - If the EMI does not begin on the agreed upon date of a particular month, then the interest charged for the subsequent month will be on the summation of the initial outstanding balance PLUS the unpaid/unsettled interest amount of the preceding month.
Let’s look at an example
Loan Amount – 50 lakhs, ROI – 8.6%, Tenure - 20 years and the EMI works out to Rs 43708. Loan amount is fully disbursed on 1st of June and EMI is agreed to be collected from the 1st of the next month (1st of July)
Scenario 1 – EMI commenced on time
Scenario 2 – EMI has not started
Score Card after missing of 3 months of EMI
1) Outstanding Balance is Rs 5108272 instead of Rs 4930882 had the EMI’s started on time.
2) Absolute additional interest cost is Rs 942 (108272-107330) due to the delay in starting the EMI’s.
The Bottomline - If EMI’s do not start on time it’s you who has to be worried and not the Bank/HFC’s. It will not just add to your absolute financial cost but can also affect your Credit score negatively.