Why Borrowers Hesitate from Switching Lenders?
Jul 26, 2017 Home Trading Steps
Home loan borrowers always have the option of switching the loan lender in case the other one is offering the loan at reduced rates. This brings down the overall cost of the property. But the borrowers often hesitate from switching lenders. They would rather stick with their current lender. However, if they find another bank offering a reduced rate of interest on home loans, the temptation to switch the lender can be there. Most borrowers still stay with their lender only to avoid the hassle and enormous paperwork that comes with it.
There are some reasons for the same:
The RBI has not set up any defined rules for the transfer of the loan from one lender to another. Hence, the banks follow their own rules and regulation in this regard. This is also the reason why accepting such a case is quite a risk for the new lender. For example, the new lender will get the property paper handed over to them only when the entire outstanding amount has been paid to the old lender by the new lender. However, the banks go ahead and take the risk to bring in more customers. All the banks are willing to take the risk.
Switching the home loan lender is just like applying for a new loan. That means you have to do all the paperwork all over again and make copies of them, proof of your identity, your income related documents, tax related papers etc. The borrower will also have to get a no objection certificate from their current lender stating that they don’t have any objection with you switching the lender. The current lender will also convince you to the best to make your stay with them and not change the loan lender. This will include a long discussion of hours between you and the current bank. Also, the bank will issue an official letter stating the outstanding amount you owe them. You will have to submit both the NOC and the letter of outstanding amount to the new lender.
The new lender will consider you as a new applicant and go through your loan history again. If you have been diligent in paying your loan, then the new lender might be hesitant in issuing you the loan.
When you apply for the loan with the new bank you will have to pay for the registration charges, stamp duty etc all over again. The borrower needs to figure out if the squeeze is worth or not.
Apart from the above issues, the borrowers like to wait for their existing bank to reduce the loan rates saving them a tonne of paperwork and hassle. Frequent switching may not look good on your bank portfolio.
There are some reasons for the same:
The RBI has not set up any defined rules for the transfer of the loan from one lender to another. Hence, the banks follow their own rules and regulation in this regard. This is also the reason why accepting such a case is quite a risk for the new lender. For example, the new lender will get the property paper handed over to them only when the entire outstanding amount has been paid to the old lender by the new lender. However, the banks go ahead and take the risk to bring in more customers. All the banks are willing to take the risk.
Switching the home loan lender is just like applying for a new loan. That means you have to do all the paperwork all over again and make copies of them, proof of your identity, your income related documents, tax related papers etc. The borrower will also have to get a no objection certificate from their current lender stating that they don’t have any objection with you switching the lender. The current lender will also convince you to the best to make your stay with them and not change the loan lender. This will include a long discussion of hours between you and the current bank. Also, the bank will issue an official letter stating the outstanding amount you owe them. You will have to submit both the NOC and the letter of outstanding amount to the new lender.
The new lender will consider you as a new applicant and go through your loan history again. If you have been diligent in paying your loan, then the new lender might be hesitant in issuing you the loan.
When you apply for the loan with the new bank you will have to pay for the registration charges, stamp duty etc all over again. The borrower needs to figure out if the squeeze is worth or not.
Apart from the above issues, the borrowers like to wait for their existing bank to reduce the loan rates saving them a tonne of paperwork and hassle. Frequent switching may not look good on your bank portfolio.
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