23 June 2008

New-age moneylenders

Over the last year or so, quite a few people who borrowed money from banks killed themselves. Reason: they missed an EMI or two and the collection agencies hounded them like crazy and humiliated them.

That made me think of the many calls we receive from banks, begging us to take loans. It doesn’t matter that you already have one and are on the verge of selling your furniture to pay back the loan. They’ll still try to shove another loan down your throat. I don’t understand how this works.

If 60-70% of a person’s income is already tied down in debt payments, on what basis do banks ask that person to take another loan? I know that loan begets loan if you have a good credit history. Am no finance guru, but isn’t it necessary, amidst all that hard selling, to think about the loan repayment capacity of the borrower?

I was wondering if this was happening only in India. But recently, I saw a documentary, The American Nightmare, with the same subject, that is, people falling for easy loans that quickly become traps. I think the documentary was set in Cleveland where houses in whole localities were boarded up and put up for auctions. Pretty scary.


Praveen R. Bhat said...

Factually, most of US runs a credit life and India is just following similar practices now. But what we don't see is the following is wrong for these reasons:
i) US loans are much cheaper.
ii) They don't "recover" loans in various harsh methods the way our banks do.
iii) If the house buyer declares bankruptcy or just says that he can't pay, the banks have to sell the mortgaged property at whatever value and thats about it. In India, if the mortgaged house sells at a lower price, the buyer still owes the bank the rest!

Bottomline: Loans in India are crazier!

Viju said...

So true. In the documentary I saw, the people on the edge of bankruptcy were being helped by an agency (dont know if it was govt. or non-profit) to secure a cheaper loan, etc. What you said is right.

The FallenAngel said...

Didn't scare me enough.... I don't earn and I don't have a house! :)