A piece of advice to save you from feeling duped by a bank when it comes to loans

A piece of advice to save you from feeling duped by a bank when it comes to loans

Having right knowledge of loans is crucial if an individual doesn’t want to get duped from the bank or any financial institutions. A person should have the knowledge about the loan, its interest rates and his own credit score.

Loan is an amount of money that one or more individuals or enterprises obtain from banks or other financial organisations in order to handle their finances in connection with anticipated or unforeseen circumstances. By doing this, the borrower creates a debt that must be repaid with interest within a predetermined time frame.

 Before any money is transferred, the lender and borrower must agree on the terms of the loan. The loan document will specify any instances where the lender may ask the borrower to pledge an asset as security.

A mortgage is a frequent loan taken by American households to pay for real estate. Governments, businesses, and private persons can all get loans. The main purpose of taking out one is to obtain money to increase one's total available funds. The lender receives income from the interest and fees.

In addition to secured and unsecured loans, conventional loans, open-end and closed-end varieties.

  • Secured & unsecured loans: A loan that is secured has some sort of collateral as security. For instance, up until the loans are fully repaid, the majority of financial institutions demand that borrowers show their title deeds or other documentation that prove their ownership of an item. Stocks, bonds, and personal property can also be pledged as collateral.

When they need to borrow sizable amounts of money, most people ask for secured loans. Secured loans frequently include lower interest rates, strict borrowing restrictions, and protracted repayment terms.

On the other hand, with an unsecured loan, the borrower is not required to put up any property as security. Lenders who offer unsecured loans conduct a thorough evaluation of the borrower's financial situation.

They will then be able to determine whether or not to provide the loan and estimate the recipient's capacity for payback.

  • Open-End and Closed-End Loans: Another way to categorise a loan is as closed-end or open-end. An individual has the option to borrow repeatedly with an open-ended loan.

Despite having credit constraints, credit cards and lines of credit are ideal instances of open-ended loans.

An individual may decide to spend all or a portion of his credit limit depending on his financial needs. The available credit is depleted each time this guy uses his credit card to make a purchase.

  • Conventional Loans: It is often used while making a mortgage application. It speaks of a loan that is not covered by the government's Rural Housing Service, for example (RHS).

Things to Consider Before Applying for a Loan:

There are a few things people should first consider if they intend to apply for loans. They consist of:

  • Credit Score and Credit History: A person's ability to repay a loan on time is demonstrated to a lender by having a strong credit score and history.

Therefore, the likelihood of getting authorised for a loan increases with credit score. An individual has a better chance of receiving favourable conditions if they have a decent credit score.

  • Income: Another factor that a person should consider before applying for any loan is his income. A pay stub, a W-2 form, and a wage letter from the employer must be submitted for an employee.

If the applicant is self-employed, he only needs to provide his tax returns for the previous two or more years, together with any relevant invoices.

  • Monthly Obligations: In addition to their income, a loan application must carefully consider their monthly obligations.

What happens if someone fails to repay the personal loan?

If the borrower fails on the personal loan for a period longer than 90 days, it will be considered a non-performing asset. Under Section 138 of the Negotiable Instruments Act of 1881, the lender has the authority to take legal action against the borrower if the debt is not repaid even after 180 days.

 The lender will use all available recovery techniques, such as issuing two reminders and a recall letter, before taking legal action. The recall letter will be the last reminder, and it will expressly state that the lender would take legal action if the debt is not paid in full by a certain date.

The lender may offer options like debt modification if the borrower submits an appeal and provides sufficient justification for the non-repayment. The borrower will find it easier to pay the fees thanks to the reorganisation.

In contrast, if the borrower has misappropriated money and is purposefully avoiding loan repayment, or if the collateral is sold (in the case of secured personal loans) without the lender's knowledge, a criminal case will be filed against the borrower as a form of punishment for personal loan default.

There are some rights that borrowers are entitled to even though the lender has the ability to sue defaulting borrowers.

  • Rights to Notice : Rights to be informed of the relevant information, i.e., the accusations levelled against the defendant
  • Rights to Fair Value : The right to be informed of the asset's selling price.
  • Right to be heard: The right to express their opinion.
  • Rights to be treated politely: Rights to courteous treatment and dignity in treatment.
  • Rights to Claim the Balance: The remaining worth after using the asset's selling revenues to pay off the outstanding debt.

How can a person save himself from getting duped by a bank?

The borrower can consult with the bank or lender to discuss the current issue that could have led to a default on the loan. Borrowers have the option to restructure their loans or ask for more time to make their payments.

Borrowers have the option of asking the bank to shorten the loan term and raise the monthly payment. By doing this, the loan burden can be reduced and the borrower can easily repay the amount.

Borrowers may ask the bank for a settlement if they have no other options. The borrower may settle a portion of the unpaid loan sum, if the bank permits. Although the borrower may feel relieved, this could have a bad effect on their credit score. The borrower is required to repay the debt in full before applying for any additional credit.

In case of negligence on part of a bank in India, the borrower or account holder can file an FIR against the bank to take legal action against it.


While banks and lenders have the right to recoup a loan or credit they provided to a borrower, they must also take the borrower's rights into consideration. When a borrower's rights are violated, the bank may face legal repercussions since the borrower may decide to sue the bank. A borrower should always aware of his rights and duties so that he can never get duped by a financial institution


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