Customers sore over hikes in interest rate

DUBAI — Do banks act on their ‘whims and fancies’ when they ‘suddenly’ hike the interest rates on loans ? Well, some of the customers may feel that way when they get a letter from the bank on one fine morning announcing an increase in the interest rate on the loan advanced to them.

By Joy Sengupta

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Published: Fri 15 Sep 2006, 10:38 PM

Last updated: Sat 4 Apr 2015, 8:24 PM

The banks, on the other hand, are of the opinion that the customers are always in a hurry and don’t even care to read the agreement which talks about the increase in interest rates according to the flexibility in the market.

Nevertheless, there are many for whom the bank communication on rise in interest comes as a shocker. Says Gaurav Sinha, in a letter addressed to Khaleej Times “All of a sudden I got a letter from the RAK Bank on September 2 last which stated that my mortgage loan interest had been increased by 0.5 per cent. And the bank did not find it necessary to give me prior information. Moreover, they never told me anything about the possible increase when I took the loan. According to the reason given by the bank, they had increased the percentage as the bank had experienced an increase in the inter bank interest rates. The question is that why a customer should carry the burden of the bank’s lack of foresight at managing its business? And if such was the case, why did the staff of the bank guarantee no rate fluctuations?”

Zakhir Hussain, an employee with the government, voices similar concerns. Hussain had taken a personal loan at an interest of 8.5 per cent from the RAK Bank. “Suddenly I got a letter last month saying that the rate of interest had been increased to 11.5 per cent. And there was no such thing mentioned in the loan agreement. I don’t understand why do they do it? And they don’t even tell you the reason even after so many queries. I have stopped asking now. I have no choice but to bear the burden,” he rues.

These are just a few of the many cases involving almost all the banks. “They would talk to you in a very polite manner if they have to give you a credit card. Once you are a customer and you have applied for a loan, the problem starts”.

A cross section of customers of premier banks like ABN AMRO, Citibank, Standard Chartered also seem to have similar experience.

“Firstly, why do they increase the rate of interest? I have friends whose interest rates have been increased in just three to four months after they took the loan. And if they are doing so, they should inform the customer a month in advance. They can easily call up and say that the rate of interest might increase. But their customer service department does not bother to do it” adds Rujish Mishra, a businessman.

According to a source in one of the banks, the banks would never commit in advance that the rate of interest will increase. “They are not going to do that. If it a personal loan for more than 10 years or so, they will never disclose that the interest rates would increase. The banks are also here to do business,” he said.

Most of the bank officials did not make any comments on the matter. Some of them said that everything was very clearly stated in the loan agreement. “We don’t cheat. We are here to help the customers and not to cheat or bluff them. Everything is clear in the loan agreement. The problem is that the customers don’t go through the loan agreement before signing it. It is clearly mentioned that the interest rates could increase or decrease based upon the market. It is our advice to the customers to go through the loan agreement carefully before signing it,” maintains Navin Chandra, the team leader of the Mortgage section of the Mashreqbank.

Another official of the Citibank pointed out, “The customers too want to take chances. There are two kinds of rates for a loan. One is the Variable rate and the other is the Fixed rate. The first one depends upon the market. It can go up or down based on the fluctuations. In the Fixed rate, both the parties (bank and customer) agree upon a mutual rate. And there are no deductions on it. The customers choose the variable rate as they also hope that the interest rates would go down if there is a slump in the market. Then they should be ready for the opposite too.”

The message to the prospective borrower is clear. Use your discretion and weigh all pros and cons after carefully reading the loan agreement if you want to avoid surprises.

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