There have been several cases wherein banks have been charging extra interest to borrowers even when they are not supposed to. These cases have led the Reserve Bank of India to instruct banks to ensure that such instances are stopped and also instruct them that excess interest so charged has to be refunded.
However, there are numerous instances where the borrower remains unaware of the bank's incorrect actions and the excess interest they are incurring. Here are several situations in which the borrower can check for the identification of such instances.
Interest From Date Of Sanction
When the bank grants a loan, two distinct factors come into play. The first step involves the bank sanctioning the loan, essentially granting permission for the borrower to take out a specific loan amount. The other aspect is the loan's disbursal. The bank disburses the actual amount to the borrower.
The fact that a bank has sanctioned a loan does not mean that it has been disbursed. For example, a home loan might be sanctioned for Rs 1 crore, but this might be disbursed at intervals of four months each, so the current amount disbursed could be Rs 40 lakh, with the remaining to be given later as per need and the payment schedule.
It has been observed that many banks have been levying interest from the date of sanction. This is incorrect because, at this point in time, the borrower has not even taken the money. The actual charge should be from the date on which the loan is disbursed.
Loans Given By Cheque
When a loan is given by cheque, there is a date on which the cheque is prepared. This is done so that the cheque can be given to the borrower, who will then deposit the same into their bank account. There is a time lag between the date of the preparation of the cheque and when it is actually encashed.
There are banks that charge interest on the earlier date, that is, from the date when the cheque was prepared, when the actual charge should be from the date on which the money is accessed after the cheque has been deposited. In this case as well, the interest payment exceeds the appropriate amount due to its extended duration.
Interest For The Entire Month
The RBI has encountered instances where the bank charged interest for the entire month, despite not using the money for the entire period. There are two ways in which this can happen.
If the loan is disbursed during the month, then interest is charged only for the days for which the money was used and not from the beginning of the month. Similarly, if the loan is repaid during the month, the interest is calculated only up to the repayment date and not for the entire month. The borrower has no idea about the workings, so they end up paying extra.
Advance Installments
There is a need to be careful when it comes to advance installments because there are times when the bank takes some advance installments on the loan. The agreement with the borrower may dictate this, but the question remains whether the interest calculations accurately reflect this.
The banks take the amounts but do not reduce them in their interest calculations, which means that the borrower is paying an extra amount of interest even on the amount that they have repaid.
The writer is the founder of Moneyeduschool.
The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
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