Branch Stories: names and personal details have been changed. Based on situations we see in Indian bank branches.
Suresh ji had been a customer for twelve years. Small electronics shop, steady business, always paid on time. He came in on a Saturday, a little apologetic.
“Sir, I need ₹5 lakh for my daughter’s wedding. Your bank is quoting around 12.5%. But one finance company is giving only 8%. Aap bura mat maaniyega, but 8 is 8.”
He showed me the WhatsApp message from the agent. “Personal loan @ 8% only! 5 years. Instant approval.” In small letters at the bottom: flat rate.
The two small words
“Suresh ji, can I show you something before you decide?”
I took a sheet of paper.
“With a flat rate, they charge 8% every year on the full ₹5 lakh, for all 5 years. Even after you have repaid most of it. So interest is ₹5 lakh × 8% × 5 years = ₹2 lakh. Total ₹7 lakh, divided by 60 months. EMI about ₹11,667.”
“With a reducing rate, like ours, interest is charged only on what you still owe. Every month, as you repay, the interest goes down.”
Then I opened the calculator. “Now let’s see: what reducing rate gives an EMI of ₹11,667 on ₹5 lakh for 5 years?”
The answer was about 14.1%.
He took off his glasses. “Matlab, unka 8% asal mein 14% hai?”
“Yes. Their ‘8%’ costs you more than our 12.5%.”
Side by side
| ₹5 lakh, 5 years | “8% flat” offer | 12.5% reducing |
|---|---|---|
| Monthly EMI | ₹11,667 | ₹11,249 |
| Total interest | ₹2,00,000 | ₹1,74,938 |
| Real (reducing) rate | about 14.1% | 12.5% |
And that was before the finance company’s processing fee, which was 3% plus GST. Ours was lower.
The questions he didn’t know to ask
I told him what to ask any lender, including us:
- “Is this a flat rate or a reducing balance rate?”
- “What is the APR?” Lenders must give a Key Fact Statement with the annual percentage rate, which includes fees.
- “What is the processing fee, and is there any insurance added?”
- “What are the prepayment and foreclosure charges?”
Suresh ji took the loan from us. Not because I pushed him. Because, as he said, “Pehli baar kisi ne calculation dikhaya.”
At the wedding, he introduced me to a relative as “the bank manager who saved me ₹25,000 with one sheet of paper.” I’ll take that.
Banker’s advice
- A flat rate is often close to double when converted to a reducing rate for a 3–5 year loan.
- Always compare the APR in the Key Fact Statement, not the headline rate.
- Add the processing fee and insurance to your comparison.
- Use the same tenure when comparing two offers.
- Don’t decide on WhatsApp messages. Get the offer in writing.
Figures are illustrative. Rates and fees vary by lender. Always read the Key Fact Statement before signing.