Loan

Personal Finance – What is a down payment ?

A term such as a down payment may seem obvious to many people who have experience in dealing with financial matters, but it makes a lot of difference to somebody who is getting into the matters of loans, EMI’s, etc for the first time. I know a lot of younger people who did not plan for a down payment when considering a loan, and had to scramble to arrange the funds for a down payment (and in their cases, since they did have much of a credit rating, there was no flexibility in down payment terms for them). Read more about what a down payment is, and what sort of planning is required (link to article):

Down payment is the amount of money that you have pay from your end. Typically, banks and other financial institutions expect buyers to pay around 15-20% as down payment. So, for a house costing Rs. 40 lakhs, the amount to be paid as down payment could be be something like Rs. 6-8 lakhs, which is a large amount of money. A lot of people do not really expect to pay this kind of money, and get into problems when they have to make such down payments. Banks can even increase this amount of down payment when times are bad, or the person has a lower credit rating.

Personal finance – What is loan insurance ?

What is loan insurance, and why do you need it ?
Loan insurance is an insurance policy meant to cover the risks taken when a person takes a loan for which the principal amount is many times greater than your annual money inflow, and you need to have a backup plan if this source of income stops coming in, and still need to keep repaying the loan. Read more about this type of insurance at this article (link to article):

But what happens if suddenly things take a bad turn ?
- You lose your job
- Or even more horribly, the person gets injured or loses their life
In all such cases, the burden of repaying the loan becomes huge, since the income stream could reduce or vanish. When that happens, the bank or financial institution will want to reclaim their loan or their asset, and the family members will be in a bad position. The asset against which the loan was given could be taken away, or something similar could happen.

Consumer: Bank charged penalty for charging older customer more than newer customers

It is an established business fact that when banks give loans to their customers, they normally treat newer customers more attractively than they treat older customers. The terms and conditions of the loan specify for floating rate loan that banks can charge customers more (either by increasing the EMI amount, or the loan duration) if the interest rate regime changes. Similarly, even in the case of fixed rate loans, the bank retains the right (if you read the complete legalese of the loan terms, you can confirm) to change the fixed rate loans if the rate of interest changes by a certain amount. This changing of fixed interest rate has not been challenged, however, somebody challenged the fact that they were being charged more than new customers, treating that as a unlawful practice. This was accepted by the consumer forum which fined the bank (link to article):

Imposing a penalty of Rs one lakh, which the bank will pay to Goyal, the forum said, ‘The bank is directed to overhaul accounts of all its loanees and bring the rate of interest at par with those at which the loan (home) is advanced to new customers from time to time, so that all its customers, whether old or new, who have opted for adjustable rate of interest pay the same rate of interest during any particular period.’
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