Dear Loan Borrowers, Do You Know Your Rights?

Borrowing money from any financial institution doesn’t make you a subject to its whims and fancies. In fact, your EMIs (Equated Monthly Instalments) necessarily allow them to make profits, and as such, the lender too owes the loan applicant some gratitude. However, given that it is the lender who takes the most significant risk, we assume that the position of power rests with it. But even the borrowers hold some rights which make the entire process both smooth and efficient for them.

These rights not only ensure that you are well informed about the complete process but also allow you to complete your loan repayment with minimal lender interference. So, in case you too are looking to Apply for a Personal Loan, here are some of the rights you are entitled to as a borrower:

Loan Application Process

  • Language: Any communication from a financial institution during any stage of the loan process should be in the local language. Else, it can also be in a language understood by the citizens of the place.
  • Clear application form: A loan application form should contain all the necessary details that may be required by the borrowers to come to an informed decision. The terms and conditions put forward by the banks must also be clear so that they can evaluate the various loan offers by different financial institutions.
  • Receipt acknowledgment: A financial institution, upon receiving your application, should give due recognition of its reception. Ideally, it should also state how long its assessment will take .

Loan appraisal process

  • Loan amount: Once the application is assessed and the loan approved, the lender should let the borrower know about the amount sanctioned in writing as soon as possible. This written communication has to again be in a local language or a language the borrower is familiar with.
  • The rate of interest: The interest rate is the most crucial aspect of a loan for a borrower. It should be stated clearly by the financial institution, along with the penal interest charges in case of late repayment .

Loan disbursement

  • Changes in terms and conditions: The financial institution in writing must notify any prospective changes in interest rates, prepayment charges, or service charges affecting the disbursement schedule (and thus the borrower).
  • Recall/Accelerate payments: Any decision to recall or accelerate a borrower’s money or performance by the financial institution must be under the terms and conditions agreed upon initially.
  • Release securities: The financial institution is obligated to release the protection put up against a loan once the repayment is complete. However, if loan repayment isn’t made, the institution is allowed to recover the dues by auctioning the security. In such a case, it has to notify the borrower before taking the step and also provide a period to clear out the dues before the auction is held. For instance, once the Home Loan Repayment is done by the borrower, the lender is obliged to release the home in the name of the borrower.

General laws

  • Interference: Financial institutions don’t have any right to interfere in a borrower’s public affairs unless stated otherwise in the terms and conditions agreed upon. However, the institution can interfere if any necessary information is withheld at the time of applying and comes to light later.
  • Quick response: In case of a loan account transfer request by the borrower, the financial institution has to decide on either accepting or rejecting it within 21 days from when the application is made. If approved, the transfer should take place under the law and in a transparent manner.
  • Loan recovery: Any financial institution’s staff is expected to be trained appropriately to handle customers correctly. They cannot harass a borrower with uncalled for pestering, which includes calling at odd hours and physically threatening the borrower to recover the loan amount among other inappropriate tactics.
  • Grievance redressal: An appropriate grievance redressal mechanism must be put in place by every financial institution so that if any of the borrower’s rights are being neglected or violated, he/she can approach the institution, complain, and be informed about the corrective measures put in place to handle the situation.

The Reserve Bank of India has taken plenty of steps to ensure every borrower has a smooth loan repayment experience. These steps have been laid down by it in the Fair Practices Code. It is advisable for a borrower to ascertain that the financial institution he or she goes with complies with this Code to avoid any hiccups in the future. Apart from this, the borrowers also must educate and aware those around so that no borrower can be taken undue advantage of.

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