The Hidden cost and beauty of number game
I am gonna tell you 2 ways in which the bankers trick you into pay more for the same loan amount. It needs a bit of imagination if not analytical skill and I believe everyone will have abundant imagination to start with. Here is the first trick and second one perhaps in a later blog!
Trick number 1: Normally bank charges a processing fee to release your loan!
Banks world over add this processing fee to your loan and convince you that there is no need to pay this from your pocket. Now here is where you should be skeptical about this sly practice.
So as a First Rule: Never believe the banker's words and
the Second Rule: when they say something, check why they are saying, what they are saying.
Essentially what they just did is this — They added the fee and increased your loan amount. So whatever interest you pay, you end up paying interest on the fee as well! It's just that plain and simple
Next steps — Here is a sneak peek of an example of this. Assuming you have taken a loan of 8 lakhs at a 7.65% interest rate and the processing fee is 5000/-. If they add this chargeback to your loan, you will end up paying double the processing fee. Yes, you heard it right, you just paid the double, and the banker just made that much more money without your knowledge.
What does it tell you — There is a saying in Kannada ಪ್ರತ್ಯಕ್ಷ್ಯವಾಗಿ ಕಂಡರೂ ಪ್ರಮಾಣಿಸಿ ನೋಡು (pratyakṣa kanḍaruu pramāṇisi nōḍu) is a proverb in Kannada which literally means …‘Even when something is evident, Examine it’.
Richard Thaler, once said, When an economist says the evidence is “mixed”, he or she means that the theory says one thing and data says the opposite! How true and if you just extrapolate this to the banker, what they say and what they mean turns out to be always advantageous to the banks! So next time when you walk into the bank for a loan , just remember — They are helping you to make themselves more profitable :) and there is more than just the plain truth hidden in numbers!