Neither a borrower nor a lender be ...

Back to articles

Competition is stiffening on the consumer lending market. The banks have to resort to all possible tricks in their agreements with clients. The borrowers turn out to be the only ones suffering from such tricks
  
Unofficially, banks admit that interest rates remain the only weapon in the endless fight for more clients. The cheaper the proposed loans are, the more possibilities a financial institution has to attract borrowers. Decreasing interest rates has become a task for all banks working with the population. Today, that population is reached most often by financing automobile or real estate acquisitions. At that, the bank is not lowering its profitability on operations.

The first rule for the buyer when registering an automobile loan is not to believe the popular advertising myth that one can buy a car at an interest rate of 0%. No matter how much the car's seller assures you of the authenticity of the offer, you should keep in mind that the bank issuing the loan is not doing it to be charitable. Its only objective is to make a profit on its loans in any possible way. That is why as soon as you see the advertising sigh about zero interest rate loan, expect a catch.

The first is that a bank will include the cost of the loan into the car's price. For example, an Opel purchased through a privileged loan will be more expensive than the same model of the German car from other dealers. The second with the zero interest rate trick is that the bank will simply overcharge the client for its registration. The bank can also foresee regular payment of commission, which you will have to pay with loan payments. Be that as it may, the bank will certainly find some way of compensating its expenses.

Another trick that is often used at sales on credit is very low interest rates. It is likely that in the next six months the rates for hard currency loans will not drop lower than 12-16% annual. So treat car dealers that offer, say 5% with caution. Most likely, they are lust testing your watchfulness, because a prospective driver will likely agree with the seller upon seeing the possibility to receive a cheap loan. At that, when signing the necessary documents, the borrower often does not read into the contract and only after time discovers that the talk was not about a 5% annual, but monthly interest rate. The payment for such watch-fullness is 60% annual throughout the whole term of lending.

While banks often manage to fool inattentive clients, it is much harder for borrowers to catch the banks. As a rule, only real professional swindlers can do something like that. The last time the talk was about them was in December 2003, when banks operating on the lending market (lending for purchases of home appliances, furniture, mobile phones, etc) were massively attacked by dishonest borrowers. In some banks, half a year ago, the increase of bad loans in consumer portfolios reached 25%. The majority of violations. Which later led to non-payment of loans were due to allocation of loans under fake or stolen passport. It is worth saying that the bankers quit quickly solved the problem with swindlers. After toughening the procedures on variation of documents (they are checked through the police database) and procedures allowing to more closely examine the borrower closely examine the borrower, the number of bad loans went down to previous sizes - 0.5-1% of the loan portfolio. So, the "fairness" was reestablished and now the borrowers remain the ones to suffer.

By Vasyl Kliuev