Online loans: how well do they work?

Online loans: how well do they work?
Comment E-mail Print Share
First Published: Wed, Dec 03 2008. 01 57 PM IST

Updated: Wed, Dec 03 2008. 01 57 PM IST
Here’s a simple question. The last time you bought a car, did you buy the first one you saw at the first dealer you visited? We think not. The same would probably hold true for the high-definition plasma TV or the latest mobile phone or camera you’ve always wanted. In fact, it’s always a tough call when it comes to spending your money.
Choosing a bank to get a personal loan is no easy task either. Especially in these difficult, cash-strapped times, when you know that every penny you fork out in interest is eventually worth its weight in gold. Your task seems even tougher once you realize that in the personal loan market, what you see is not necessarily what you get. With dozens of banks promising “ready cash” at your doorstep, it’s time-consuming, even confusing, to zero in on the best deal.
But perhaps you could try the Internet to get around this problem. Over the last few years, a number of “neutral” websites have sprung up, promising to shrink the time and effort you require to scout for the best deal.
Mint visited four such portals and went through the process of applying for loans or insurance policies to get a sense of how effective they are in getting potential customers what they are looking for.
The results, on balance, were disappointing. Public sector banks, which generally offer the cheapest loans in the market, are not yet an important part of the Internet-based system. Also, the transparency on loan terms generally leaves a lot to be desired.
Apnaloan.com
An eight-year-old portal, it features interest rates on various loans offered by banks.
Main function and USP
Apnaloan.com positions itself as a gateway to deals on offer from different banks, their interest rates, and gives a primer on borrowing. For personal loans, for instance, it covers 29 banks, though some of the rates could be dated.
Mint’s experience
To say the least, the information on the site and the reality is out of sync. For instance, according to the information on the portal, Bank of India offers one of the best deals on personal loans. We tried to use the site to get a loan from BOI. Within 5 minutes of registration, we got a call from the website, asking us to furnish more personal financial information needed to process a loan form. However, by the end of the conversation, the caller informed us that we were not entitled to a loan from BOI. Instead, he said, the information would be passed on to another bank to start the loan process. When we insisted on knowing the interest rate of the new bank chosen by the portal, the caller said he didn’t have it.
The problem
Using the website to shortlist the best deals is tough. The interest rates of different banks are there, but the site doesn’t help you to figure out the current best deal.
Deal4loans.com
The portal “links” a potential customer to sales agents and marketing teams of banks and other financial institutions.
Main function and USP
Like others, it provides all the information you may need to know while shopping for a loan. It is linked to public sector banks and foreign banks, which gives access to a wide range of interest rates.
Mint’s experience
At best, the site provides only a partial solution to your needs. Quotes from different banks are not immediately available. However, once you complete the registration process, you are inundated with calls from sales agents and bank employees over the next couple of days, offering you quotes on rates. The Internet, in this case, is the launch pad for the search. But a lot of information comes on phone over a period of time from sales agents, and the personal financial information you entered on the portal in the first step has to be repeated on phone again and again.
The problem
A general problem with such telephonic interaction at this stage is that sales agents and bankers mostly give only partial information. For instance, potential sellers rarely offer information on some basic customer queries, such as the cost of loan pre-payment. Only when prodded do some offer information on the benchmark for floating rate home loans.
Bankbazaar.com
Not even a year old, the portal is networked to a large number of banks and financial institutions.
Main function and USP
Like other sites, Bankbazaar.com too offers a primer on interest rates. However, unlike others, it has eliminated contact with sales agents and employees of the gateway websites for basic information. This is the only site among the four here that offers the going rate for a customer’s specifications almost instantaneously.
Mint’s experience
If convenience is the benchmark for the Internet’s popularity, Bankbazaar.com comes good. With straight quotes from different banks, it is the transparency factor that adds to its utility. Every single quote from a bank comes with a table, which breaks up the repayment into components such as service tax and the bank’s processing fee. Currently, it only offers home and personal loans.
The problem
When it comes to loans, nothing is as it seems. The advantage of phone calls is that they often lead to quicker conclusions. For instance, based on the financial specifications entered by Mint on the site, the portal said ABN Amro was willing to offer us a personal loan. When we entered the same details on another website, we were refused a loan, through a phone call, because the bank considered our “job profile” to be too risky.
Loanraja.com
It offers both loan and insurance products. Like most other sites, Loanraja.com too forwards applications to banks and insurers.
Main function and USP
It serves as a launch pad to put customers in touch with agents. It covers a wide variety of financial products.
Mint’s experience
In addition to a personal loan, we tried to buy a health insurance policy. The site forwards details to insurers who get in touch with policy details. Health insurance is one of the trickiest products to shop for as the devil lies in a policy’s exclusions. These exclusions need careful scrutiny. An insurer’s representative ended up directing Mint to the relevant insurer’s website. The complexity of an insurance package, perhaps, makes it tough to market over the phone. If customers have to visit the insurer’s website, there is no point in using a neutral website.
The problem
Loanraja.com did not lead to the same level of response as its competitors. Since it forwards your financial particulars to direct sales agents, you have to wait endlessly for them to revert. Unlike the other sites featured here, there was practically no response from anybody other than two insurance agents. This could be due to the fact that Loanraja.com still doesn’t have a large number of banks or financial institutions attached to it.
**********************
CONNECT
Know
Equated monthly instalments (EMIs) are the monthly payouts that go towards
paying a loan. They consist of both the principal and interest that needs to be repaid. Generally, banks calculate EMIs in two ways: flat rate and reducing balance. Reducing balance is what you should look for as the calculation under this method is considered more favourable. The banks subtract the principal already paid through earlier EMIs and charge interest on the outstanding amount of principal. In contrast, flat-rate EMIs remain untouched through the entire repayment period. Sanjiv Shankaran
Do
What if your bank goes bust? If it’s a commercial bank or an urban cooperative
insured by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC), your fixed, savings, recurring and current account deposits are protected up to Rs1 lakh. You get back both your principal and the interest payable, subject to this ceiling. The limit applies to a per-bank-per-person basis. So if you have multiple accounts with the same bank, you won’t get more than Rs1 lakh even if the amount you hold is more. But if you’re dealing with two banks, you can get up to Rs2 lakh if both go bust. Namit Gupta
Invest
You have made a capital gain on the sale of your house but have not been able
to buy a new one before the end of the financial year in order to avoid paying capital gains tax. Don’t worry. You won’t be taxed if you deposit the money in a specially designated Capital Gains Account with State Bank of India or any other designated bank and use it to construct or buy new property within three years. And the account needn’t be a fixed deposit—it can also be a savings account, which means you can make periodical withdrawals from it. Remember, though, that the amount should be used solely for buying or constructing a new house within 60 days from the date on which it was withdrawn. NG
Do
There is no escaping death and taxes, they say. And when one dies, the
responsibility of filing the returns of the deceased’s income rests with the legal heirs. Under the Income-Tax Act, the successors have to file two returns. The first will be for the income earned by the deceased from 1 April of the relevant financial year to the date of death. The second will be that of the legal heirs themselves, and their returns must include the income earned from the assets of the deceased that fall to their share. If there are two or more legal heirs, anyone can file the first return. NG
Comment E-mail Print Share
First Published: Wed, Dec 03 2008. 01 57 PM IST