A loan agreement is the document that lays out the terms and conditions of the lender. It also informs the lender of the borrower’s consent. It is very important to read what you sign for that very reason. Be informed before you agree.
The agreement could the last thing you want to read. The miniscule font size alone is a turn off. Add to that, too many asterisks, and more than ample number of sections. So, even if reading the document seems to be a mind-numbing task, you have to get it done. This document is legal and once you sign it, you are bound by its terms and conditions.
You must read the document. Because not only will it inform you, it has immense potential for amusement.
- If you have a dispute with the bank during the loan tenure, as a borrower, you cannot issue a stop-payment instruction with respect to post-dated cheques for as long as the ‘facility’ (loan) or any part of the dues is outstanding. In case such an instruction is issued, the bank can initiate criminal proceedings against you under the Negotiable Instruments Act (1881).
- If you, the loan borrower, do not understand English, a declaration in vernacular language needs to be executed and signed by you in the desired vernacular language. There is a special instruction in the agreement regarding the same.
- There is a special ‘Memorandum Regarding Signing’ for those who understand a vernacular language, for an illiterate, and for a blind person.
- According to the agreement, you cannot sell, exchange, partition, mortgage, charge, encumber, lease, or dispose the property till you have got ‘discharge’ from the bank in writing.
- You cannot hold the bank responsible for any delay in construction, giving possession of, completion of property by developer, promoter or society even if the bank has approved or sanctioned any facilities to such a person or entity.
- If you are a resident Indian, you cannot leave India for employment or business or stay long-term outside India without fully repaying the loan. You cannot stay out of India for any purpose for more than 60 days. There should not have been a change in the citizenship nor should you have made any earnings or income during this period from abroad.
- If you have taken a ‘home equity’ or a ‘top-up loan’ you cannot let out the property for use/occupation by another person without prior written permission from the bank.
- Oh yes, and this one is a personal favourite, see if it’s yours too - It is not clear whether banks are bound by law to notify you of changes in their policy. But, the agreement binds you to remain acquainted with a bank’s rules/terms and conditions affecting or relating to the loan taken.
And well, the borrower has to sign each page of an agreement at least once, as indicated. So say, in a 47-page agreement, you may have to sign up to 72 times.There’s an instruction on the agreement that says that all borrower(s) are requested to put complete signature(s) on the document, wherever crosses are marked i.e. an ‘X’. And, there are 21 such crosses in a 47-page agreement. (You may want to ask, why 72 signatures then?)
March 3rd, 2009 at 12:33 pm
Hi,
I have gone through the procedure of getting a home loan sanctioned recently and therefore I can vouch for most of your comments. Banks keep font size on letter with all the conditions and terms that it turns off further reading.
It really takes a long time to sign. And for pre-EMI I was not allowed to opt for ECS facility and had to issue 24 cheques, which was a painstaking process again.
Nice blog. Keep posting.
- Shailendra
March 5th, 2009 at 5:25 pm
Hey thanks for sharing this information. I was not aware of this things to know before buying a house. Can you explain what will be the impact of RBI recently reducing repo and reverse repo rates on home loans rates?
March 9th, 2009 at 9:43 pm
I thought banks like SBI would be straight in their clauses. I had a difficult experience recently with my loan.
Pre-Processing Blues:
The loan agent who works in my office, did not have any clue on the terms and conditions on loan. He was a retired officer from SBI and used his position to leverage the file movement. One fine day, he asked for payment against the services rendered (It was a shock to me). I guess, he would be getting some service fee on my loan from Bank already.
I gave some required papers for gaurantor to him which was not in my file. I think he lost them.
I reduced my loan amount during processing, for which I had submitted the request letter. Upon my loan approval, I noticed that there is a 1.9 Lakh additional loan sanctioned for me and added to the loan amount. I had declined the insurnace cover for the loan as I had planned to cover it on yoy basis.
I discussed this with the manager and he agreed to waive it.
Next, the gauranor must be present when you go to sign the papers. I managed to get the gaurantor to accompany me during early morning hours.
Forcibly Selling SBI-Insurance with the Loan
I saw that Insurance cover has not been removed and the SBI person would not agree to waive it even when i told that i would buy SBI insurance policy. I was told that I need to go to branch where I applied for loan and get the approval from bank manager and then it will again go for approval in the loan processing center. After a lot of persuation with the sanctioning office and Chief manager, I managed to convince for a year on year insurance cover which I had to buy for this year on the spot.
Further, I was told that my this year loan is fixed for 8% ( I was happy that I was wise in choosing SBI) then I was updated that my loan is fixed at 9.75% for next 4 years. No one had told us this clause until we went for signing. We had asked this question from clerk to Manager level. No one had a clarity on it but the clause was there in the documents and I had no option but to sign it. In the recessionary situations, I understand that the rates will look further south but I will be stuck at 9.75 for next 4 years.
Otherwise, I am kind of satisfied with the pace and professionalism of officers but I feel that more transparency in the terms and condition is must.
Moral of the story: Read all the clauses before you go to sign and do not be satisfied if you do not get an answer. Private or Public banks - every one has clauses in fine prints that suits the bank and there is no one to tell you about them.
Come on banks - Be transparent. Share the templates and clauses on your websites when you have them on paper.
After 2 visits to the loan processing office,
March 25th, 2009 at 11:26 pm
Hey buddy, I completely agree with the above writer (TiGER).
I’M in the same pool.
I opted for SBI SPECIAL HOME LOAN
but the secundrabad main branch loan processing manager put it as
SBI HOME DEAM WHICH IS 8% for 1 year and 10 % later.., they also put 68000 SBI life insurance that to with 12 % interest.
They are not telling anything about this life insurance and forcing on the customer.
which Before signing I asked the Manager, He informed that contact ur branch where i applied and when i contacted that manager, He told we can change it later also please sign the document.
I was bit firm and went to their boss, CHIEF MANGER, Finally he agreed to process the
Home loan under SBI SPECIAL HOME LOAN WITH 8% INTEREST FOR 1 YEAR AND 9.25 FOR NEXT 4 YEARS AND AFTER 5 YEAR IT WILL BE floating or fixed will be decided after 5 year tensure..
Still I don’t know about the INSURANCE !!!!!
SBI SBI O nICE, GOOD BANK….SBI SBI SBI,,,,,,, WHY SUCH FOOLISH AND DAY BRUGULARY !!!
COME ON BANKS - BE TRANSPARENT.
SHARE THE CLAUSES ON YOUR WEBSITES WHEN YOU HAVE THEM ON PAPER.
April 13th, 2009 at 6:03 pm
Hi Friends,
I concur with what tiger and SHIVKUMAR K say about the hidden or not spelled out stuff. Everybody hate those last minute surprises after all the hard work done while pursuing the case. Everybody do not have somebody known in PSU bank who can move their file forward.
I have been trying to get my loan transferred to some PSU bank. currently it is with a Private bank and like all other entities, obliging the existing customer is last on their list(well no surprise for that).
I have been trying to get it transferred to SBI they have that 8% scheme and actual ROI after 1 year will be set 10.25% (I am writing based on information from Noida branch). So, 8% is mere eyewash.
Now, till 30th June they are offering another scheme similar to Canara bank where ROI is fixed to 9.25% for the first 5 years and then will be reset to the rate based on market.
Again like Canara bank this is only for the fresh customer. Not for the takeover.
I have considered many options for takeover, but in a nutshell bottom line is if your tenure left is less than 8 years, it is probalby not worth trying it. Though people may think otherwise, but I will be happy to discuss it out.
So, my advice (based on exp.) is please do your calculation before hand and if you go for not so good (long term) offer thinking that you in any case have the option to change the lender. Then you are falling in a trap and it will be not at all easy t get out of this.
Though there are many expert on this forum who can comment on the practicality of this, but based on my personnel and friends experience it is really not that simple.
Cheers
April 24th, 2009 at 12:14 pm
Dear Sir,
as per the above statement there lots of clauses which are been mentioned
as well being mediator apnaloan excutive has also never explained the clauses when i took the loan in 2004