Home loan applicants often ask which bank offers the lowest home loan rates. While banks keep publishing their interest rates for various loan products from time to time, there is more to the published interest rate than meets the eye.
Two loan applicants to the same bank may get different rates. There is no such thing as a ‘standard rate’ for a particular bank. The rate published by banks is a ‘rack rate’ on which significant discounts are usually available.
Your ability to get the best interest rate on a home loan depends on two factors:
a) Your profile: Are you talking to the bank which is most interested in a profile such as yours? The greater the bank’s interest in your profile, the higher the chances of them offering you a discount.
b) Your bargaining power: Are you talking to multiple banks? In general, loan applicants who talk to three or more banks are effectively lining up alternatives. Softly playing one bank against another often helps, but the key is to not overdo. After all, the threat of losing business to a competitor must look realistic and credible to the bank for it to lower its rate.
So the key question now is:
How does one go about getting the best rate?
Imagine you are at a market trying to sell mangoes. The only way you can find out if you are getting the best rate for your mangoes is to let prospective buyers inspect the fruit and then compete amongst themselves so that you are able to determine who the highest bidder is and how much the highest bid price is.
Taking a loan is a matter of you selling to the bank how easily verifiable your income is. In the above example, replace mangoes with income proof documents and replace prospective mango buyers with prospective banks. Then, let the prospective banks examine your income documents in much the same way mango buyers would examine the fruit.
We recommend the following steps:
Enquire at all possible banks offering the kind of loan one is looking for
Apply at a loan marketplace that offers free services an example is Apnaloan.com.
When the bank approaches you, provide photocopies of as many documents on proof of income as possible. Documents that interest bankers include Income Tax Returns, Bank Statements, Form 16 and Salary Slip.
The rate that you would be offered after your documents are looked at by the bank would often be lower than what you are offered at the first meeting. So do not take any decision before the bank reverts to you after examining your income document.
Shortlist at least two banks (who offer the best possible rates and other terms relevant to you).
Scrutinize the draft loan agreement to ensure that there are no hidden clauses that could affect you adversely. For example, several well-known banks introduce fine-print in agreements that protect themselves, but leave the loan applicant high and dry when certain drastic events happen. If necessary, seek the advice from someone in the industry that you know and can trust.
Only then, make your decision.