Publication: Financial Chronicle
These are times when individuals are looking for various ways in which they can limit their expenses. This is true for most areas including that of borrowings or taking a loan, as even here, a lower cost means that they have to pay back a lesser amount, which works to their benefit. Some extra costs incurred while taking a home loan need to be watched closely as the interest that is actually paid on the loan, because of the impact of these costs, can be severe. Processing fees: One of the additional expenses that would be incurred for the housing loan taken by an individual would be the processing fee paid at the time of taking the loan. This fee is recovered for the various expenses that are incurred by the bank at the start of the loan tenure itself. These fees are usually charged in two ways. One of them is to have this as a small percentage of the loan amount that is actually disbursed, say 0.5 per cent of the loan amount till Rs 25 lakh. The other way in which the same fee is recovered is through a fixed amount, though in slabs again depending upon the amount of the loan. For example, the amount could be Rs 15,000 for a loan up to Rs 25 lakh and Rs 25,000 for loans between Rs 25-50 lakh, and so on.
Reductions: One of the options that are being adopted by banks to attract borrowers towards their loans is to reduce the processing fees. There is a lot of importance that has to be given to the term ‘reduction’ in this particular situation.There are two ways in which this can be tackled where a simple route is just to abolish the entire processing charges so that there are no charges that remain under this head. The other way is to actually reduce the amount of the charges so that the borrower will still end up paying some fees but these will be far less than what they would have normally paid for the same type of transaction. Both of them end up with a benefit for the borrower, and hence, they need to check the situation across the different institutions along with the other conditions so that they end up with the right mix.
Higher benefit: One of the things that have been witnessed when such benefits are offered is that there is a specific category of borrowers who actually benefit when such a change is made. What this means is that usually such cuts come into effect for large borrowers when the banks want to push more loans towards this segment of the business. Often the smaller borrowers are left out of the benefit with the end result that they still pay what they were doing earlier. This is the reason why the individual small borrower also needs to take a closer look at the actual figures in terms of the overall amounts that they are paying as these charges. If they are going towards an entity that is charging a lesser amount, then this would be a benefit for them; otherwise, they could still find themselves paying higher charges, while others get the benefit of lower fees. Another thing is that just looking at one aspect of the loan might not be the best way to choose a particular loan provider. So, if there are a lot of relevant factors considered then it would be a better way to choose a particular loan provider.
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