Availing a home loan, Personal loan, car loan or any other loan has become quite simple today as banks and private finance companies have made norms flexible. However, flooded with so many options, one may find it overwhelming and face difficulty in finalizing the best deal.
While looking for best option, the first thing that one compares is the interest rate. But apart from interest rates, there are a number of factors that should be taken into consideration.
A borrower must make sure that lured by attractive rate of interest, he does not overlook other parameters such as processing fee, prepayment charges, rate flexibility and services provided by the lender. Here is how to identify the best loan deal:
Save on fee and charges
Apart from choosing low interest rate, you can also look for options to ensure lesser EMI, prepayment charges and processing fee. So far as prepayment charges on home loans are concerned, as per the RBI norms, banks cannot charge prepayment penalty from borrowers on floating interest rates.
SBI charges 0.25 per cent of the loan amount as processing fee. Thus, on a loan of Rs 25 lakh, a borrower will have to pay Rs 6,250 as processing fee. Similarly, HDFC charges 0.5 per cent while ICICI Bank levies a processing fee of 0.5-1 per cent of the loan amount. If you are an old customer, you can negotiate for the waiver of processing fee.
Scout for concessions and schemes
Many lenders offer special concessions and attractive schemes for women and senior citizens. One can save a sizable amount by choosing the right scheme. Banks offer special rates for women where a borrower can save money.
For example, under its ‘Her Ghar’ scheme, the State Bank of India offers home loan for women at 9.70 per cent (equated monthly installment of Rs 855/lakh). However, the offer is subject to two conditions:
The woman borrower should be the sole applicant of first co-applicant; and
The property should be either in her name or in case of a joint ownership the woman borrower should be the first owner.
Similarly, HDFC, ICICI, DHFL, LIC Housing, Citibank and other lenders also offer special discounts for women and senior citizens.
Terms of loan repayment
Terms and conditions related to loan repayment vary from lender to lender. You must clarify the terms and conditions related to repayment, settlement and foreclosure of loan, prepayment and balance transfer.
Beware of hidden charges
Hidden charges always take you by surprise. Before finalizing the lender, a borrower should compare all hidden and miscellaneous charges. There is always a possibility that if a lender is offering loan on low interest rate, it may make up for the losses by means of hidden charges and fee.
Banks charge mortgage deed charge (MOD) from borrowers which is a substantial amount. Most banks charge 0.5 per cent of the total loan amount as MOD. Suppose you are availing a loan of Rs 75,00,000 you will have to pay Rs 37,500 as MOD charge.
Even if your bank is waiving off the MOD charge, there is a possibility that it may cover up by levying any other hidden charge or a higher interest rate.
For example, LIC Housing Finance charges no MOD fee but its interest rate (floating) is higher than that offered by most of the lenders.
Banks and financial institutions hire lawyers to verify legal status of the property and the cost involved in the process is borne by the borrower. However, there will be no legal fee if the project is pre-approved. Other charges include registration charge, documentation fee and stamp duty.