Home loans: Here's how banks take you for a ride

Anyone who has bought house on loan from a bank knows that processes to obtain the loan is easier said than done. Signing on the dotted line is just the beginning of a long process. And with every step, there is a possibility of your bank goofing up in more ways that you can ever imagine. At least that is what an RBI document says.

Picture this:Imagine you zeroed in on your dream house and applied for a home loan. After submitting all your documents and bank doing several checks, your loan is finally sanctioned. As expected, you request the bank to prepare a banker’s cheque for the loan amount in favour of the seller of the property.

The bank gives you a photo copy of the cheque and tells you that once you submit the original sale deed, the original cheque will be disbursed. You oblige and give the original title deed and in turn gets the cheque.

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[caption id=“attachment_113292” align=“alignright” width=“380”]  Anyone who has bought house on loan from a bank knows that processes to obtain the loan is easier said than done.[/caption]

When you check the documents, to your shock you realise that the bank has charged you interest from the date of preparation of the cheque and not from the actual delivery date.

If you thought this is an imaginary situation, it is not. This happened for real and is cited in the RBI document. The lender in this case argued that as a general practice the delivery of the photocopy of the cheque is considered as disbursement of the home loan, and hence you have to pay the interest from that date, which is clearly unfair as the amount is with the bank until you get the original cheque.The aggrieved customer finally approached the banking ombudsman.

“It was held that the bank’s practice of reckoning date of disbursement of housing loan from the date of the Banker’s Cheque for the purpose of calculating interest on loan without actually delivering the pay order constituted an unfair practice. Further, it was observed that the funds remained with the bank until the Banker’s Cheque was actually paid. Accordingly, it was held that the actual date of disbursement of the housing loan to the complainant should be reckoned from the date the pay order was actually delivered to the complainant,” the RBI document said.The bank was asked to revere all the interest charged unfairly and also compensate the customer Rs 1,000.

What we can learn: Whenever you avail any kind of loan you have to bear charge apart from the interest in the loan. Sometimes these charges are mentioned up front like the loan processing fee or pre-payment charges, while other times there are hidden charges. What we can learn from this example that there a number of ways a bank can apply hidden charges, especially in the case of a home loan since the amount is usually bigger. Before signing on the dotted line, ensure that you understand the charges and find out the hidden charges by reading the terms and conditions of the loan. Nope, you don’t have a substitute to reading and understanding the terms and conditions. Also during entire loan processing period do read all the papers and correspondence from your bank’s side to keep a check on any hidden charges.