How Personal Loan Offers Can Include Unwanted Add-Ons?

Planning to get a personal loan? Be careful, as you might be paying more than required!

When a personal loan is offered, it is essential go through all terms and conditions once to be aware of all charges that you will be paying for. This is because the loans may come with features you may not need but still be paying for. These features are what we refer to as unwanted add-ons.

Personal Loan and Unwanted Add-Ons

The loans can sometimes include unwanted add-ons not required by the borrower. These include insurance products and other financial products. Now, if you are unaware of these 'hidden' add-ons, and are also not informed by the lender, you may end up paying more needlessly. Your overall cost of the personal loan will thus be higher than what it ought to be.

The add-on features we are talking about are included in the loan package, usually, in such a way that you do not find it out until you thoroughly study the details.

Moreover, they may not even be valuable to you in any form. You may also remain unaware of them, thereby not being able to take the associated advantage.

Add-On Inclusions to Personal Loans: How They are Included, How They Remain Unwanted

The add-ons we are talking about can be any of the following:

• Loan protection insurance
• Financial products like credit cards and investment plans
• Hidden fees/charges

Loan Protection Insurance

This might be added to the loan to cover repayments in case there are chances of default from the customer's side. Unfortunately, this type of add-on significantly increases the cost of the personal loan. This may remain unwanted as the borrower may already have other insurance policies for coverage in case of job loss, disability, etc.

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Financial Products Like Credit Cards and Investment Plans

These add-ons can also increase the overall personal loan borrowing costs. The customer, in such a case, pays more than justified because s/he does not require the product. There might even be higher interest charged consequently, all only increasing the personal loan borrower's financial burden.

Hidden Fees/Charges

The lenders often do not clarify some fees and charges until the customer meets the unexpected need to pay the same. These include processing fee, prepayment penalty and late payment charges.

These inclusions only serve the lender well, but not for the borrower who has to bear such high costs.

Add-On Inclusions to Personal Loans: Why They Aren't Identified

Many lenders choose to keep the inclusions hidden so as to make a profit. Sometimes, they may even use ways to make it difficult for the person to remove the particular add-on/s from the package.

Financial institutions provide loan agreements which contain the details but in such a way that the borrower is unable to gain insights of the same.

Is it Mandatory to Allow Such Unwanted Add-On Inclusions to a Personal Loan?

No. It has been declared by the Reserve Bank of India (RBI) that you carry the right to decline such personal loan offers that make it necessary to purchase a third-party product. It is in your right to choose what loan package to borrow and which one to reject.

Cross-Selling in Personal Loans

We've discussed that credit cards, insurance, etc. are often added secretly or silently to personal loans, increasing costs for the borrowers.

Cross-selling refers to the practice a business adopts, where it sells related financial products along with the main one.

In case of personal loans, these products can be credit cards, top-up loans, insurance plans, investment products, other insurance schemes, etc.

The lenders use cross-selling to increase their customer base, boost revenue, and create stronger relationships. The lenders will not lose much also when the person is not able to repayment the full amount, thereby making for the resulting loss.

What's the Solution?

Here are the ways to avoid paying for cross-selling and unwanted add-ons on personal loans:

• Ask for a clear cost breakdown
• Study the agreement's fine print thoroughly
• Watch out for bundled offers that may have some extra products added silently
• Compare with offers from other lenders
• Don't fall for the pressure or the convincing tactics of the lenders
• You may speak to others who have earlier borrowed a similar loan, especially from the same institution
• Look for independent financial advice
• You may also negotiate with the lender when you feel the need

Stay informed and stay aware to avoid losing your wealth to such unethical practices.

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