Home Loans and customer vigilance

Home loan borrowers are less likely to default, because it would mean forfeiting the right to their homes.

The people they do need to be vigilant about, however, are another set of agents – the direct Selling Agents [DSA]. They are mostly third party agents appointed by banks or housing finance companies for mobilizing customers and making things easier for their marketing team.

These DSAs also help the customers in terms of facilitating the whole process of taking a loan in terms of information, documents required, all of which they make available at customer’s doorstep, thus saving the customer several trips to the Bank or HFC. They offer great convenience, particularly in institutions where there is a great deal of red tapism but one must be careful.

Customers also point out that some DSAs, in their enthusiasm to clinch a loan, tend to gloss over or misrepresent facts, and borrowers who become aware of this at a later date feel let down at not being a clear picture.

Customers, on their part, should be sure of what is being conveyed with regard to the rate of interest, loan eligibility, monthly reducing or annual reducing option, fixed or floating loan.

The DSA may, for instance without knowing your loan eligibility, tell you that the bank or HFC is offering interest rates as low as 9.5%. The reality may be that the bank or HFC has different slabs with different interest rates. They may be offering 10.5% interest rate for loans upto Rs 10 lakh, at 10% between 10 and 20 lakh and above 20 lakh at 9.5%. Here the DSA may not have conveyed this. The customer who is interested in taking a loan has heard of the general market rates at around 10%. He will hence immediately fall into the trap of deciding to go with this particular institution.

Many charges like service charges, document franking charges, are sometimes not conveyed upfront to the customer. These are valid charges, but some banks cover this in the one per cent processing fees, while some others charge over and above it.

At the time of disbursement, the customer should be very particular that he does not sign a blank loan agreement or sign where it is not required.

He should sign at the bottom or in those places where the cross marks or the signature crosses have been placed. This is to protect against overwriting, cancellation or rewriting by the DSA.

Customers are also required to give security checks; these should not be blank checks and should be filled up with the amount.

Another point that customers need to be careful of is that they rarely ask what the prepayment penalty is, while the fact is that most of them end up prepaying. The average of a home loan these days often tends to be a little below eight years.

Different banks have different rules on this with some insisting that you cannot repay in the first six months and others say that you an repay up to 25% of the outstanding loans. The customers need to know the rules in this regard. Customers need to be aware of these details, but in their hurry to finalize a loan, they often tend to overlook these aspects.

Borrowers also complain of delays in the loan disbursement, from the commitment given by the DSA of say seven days. These may sometimes be due to the incompetence of the DSA who may not have collected all the documents or would have not checked about the clarity in the documents in terms of signature or photograph. The bank cannot, of course, process the application with only half the documents. Customers also sometimes do not come clean about having taken other loans or possessing a credit card, all of which will lead to delays.

Customers should read the approval letter to see if it matches what he has been looking for.

During the time of disbursement of the loan, the customer should preferably and over the original documents to the institution. You are after all buying a home once in a lifetime, or twice Institutions like HDFC call on their customers to come and hand over the original papers. Here due to unavoidable circumstances the documents are handed over to the direct selling agent, he should take an acknowledgement from the DSA and the institution that they have received it.