Reading a loan offer properly: rate is not the same as cost

Borrowers compare the advertised rate and stop there. Over a twenty-year loan, the terms that surround that rate frequently matter more than the rate itself.

The five clauses to read first

1. Spread and reset. On an external-benchmark loan, the spread over the benchmark is what you actually negotiate. Confirm whether it can be revised, and on what basis.
2. Processing and legal fees. Often quoted as a percentage with a cap. Ask for the rupee figure.
3. Insurance bundling. A single-premium cover funded by the loan quietly raises your effective rate. It is almost always optional.
4. Prepayment terms. Floating-rate loans to individuals generally cannot carry foreclosure charges. Fixed-rate facilities can. Check which you are being sold.
5. Part-payment mechanics. Whether a part-payment reduces tenure or EMI by default, and whether you can choose, changes total interest materially.

Comparing honestly

Build the full amortisation schedule for each offer with every fee included, and compare total outflow rather than monthly EMI. A lower EMI achieved through a longer tenure is not a cheaper loan.

On balance transfers

A transfer pays only when the remaining tenure is long enough for the rate saving to exceed the switching cost. On a loan with six years left, it usually does not.