Money Matters - Simplified

There Is No Free Lunch! Expensive Loans

"Good Morning", says a sweet voice I'm calling from ABC Bank. We provide housing loans, car loans, loans for consumer durables, credit cards, loans against property with the easy repayment options. Moreover we provide fantastic investment opportunities. Moreover we can ...Are you interested?

Sounds familiar? More often than not, this is the voice which one hears when one least wants to hear it, this is the voice most of the people wake up to during the afternoon nap, this is the voice which tries to be a part of an important business meeting, this is the voice which you are listening to while driving and the traffic cops whistle.

The banks now days are ready to provide loans for just about everything. One can enter the world's most magnificent shopping malls without a penny in pocket and come out after shopping to hearts content, all with the help of plastic money (credit card). It's all so easy. Be it home loan, auto loan, personal loan or a swipe away credit card loan, the banks get the customer into a trap, the never ending debt trap. The processing fee, interest charges, penal charges, late payment charges, foreclosure charges etc on these loans are so heavy that one would live and earn only to repay the EMI’s of these loans.

The "0% Interest Financing" schemes are everywhere these days. But one has to be really cautious before buying because the 0 % is not actually 0%. The price one may end up paying for the product under the said schemes may actually be higher than what one may pay if one chooses not to get the product financed and pay a lump sum amount upfront.

As they say "There's no free lunch!" At times the price of the product is inflated to make up for the interest under the 0% interest financing scheme or the EMIs may have an inbuilt interest component. The clause at times may only be applicable on a minimum purchase requirement on maybe on specific brands only. It is advisable to understand completely how exactly the "0% interest" program works.

If one wishes to get out of this debt trap, a price has to be paid by way of foreclosure charges which range between 2% to 5% of the principal outstanding on the loan. To make matters worse for the loanee, the initial EMIs have a very small component of the principal amount and a heavy component of the interest amount. Essentially, this means that even after a two year repayment, one may realize that a lion's share of the principal is still outstanding on which foreclosure charges have to be paid.

So, what is the way out? "Good Evening Sir, I am calling from XYZ bank and we are offering zero percent balance transfer schemes for your existing loans".