You have just finalized your dream home and are now looking to get it financed with Home loan. So, the next step is that you log on to internet and search for best home loan deals. Your search leads you to various loan deal sites which have come up in last couple of years and claim to help you find the best loan deal.
I also did a quick search and tried to find out if their claims of best deals are worth spending time or just claims. Read on to find the truth.
They virtually claim to have deals for all types of loan i.e. home, car, personal etc.
The business model of these sites is pretty simple. They just have an online platform and try to catch eyes of people who are searching for any type of loans on internet. Once you are on their site, you will be asked to enter your details and loan requirement along with your contact details. Now, these details are sold to various DSA’s (Direct selling agents) or brokers of banks who will then start calling you for helping you with loans.
The deal site itself may be a DSA of a bank and may contact you to process your loan. All DSA’s charge a portion of processing fees and a percentage of commission on loan value from bank.
So, don’t expect them to work in your favor to get the best deal. Instead you may end up paying more than you could have paid if you had approached the bank directly.
Well, I could not find any for myself. They all advertise heavily about the lowest interest rates and unbelievebily low processing fees but things turn sour when you actually start the loan process. As they all that glitters is not gold, the advertisements are mostly to lure you to enter your details.
If you don’t enter your contact details, the deal site loses a chance to sell your infromation to a prospective DSA.
The two most significant aspects of a loan are interest rates and processing fees. If they both are lower than the what is available in market, you can say that you have got a better deal. But are they really lower than what you will get if you talk to bank directly?
Well, the simple answer is NO. This is because if you simply understand the whole chain, you will find that you will always have a DSA (Direct selling agent)/broker of the bank who is trying to sell a product of the bank to you. His income or profit is extracted out of what you pay to bank i.e. processing fees and interest rate.
For example, while applying for a loan through a DSA, you might be asked to pay processing fees of 0.5% of loan amount whereas if you directly approach the bank, you might be able to get at 0.25% most of the time. Now, this difference of 0.25% is what goes into DSA’s pocket.
The higher the rate of interest, the higher the commission for DSA/broker. So, it is not always going to be a win-win situation for you and broker. These DSA’s are NOT part of bank. They are independent firms/companies who sell bank loan products and earn through commissions on finalized deals.
Have you ever thought that why do these DSA’s never talk about loans from government or public sector banks? They are always in favor of selling you a private bank loan even though the rate of interest of most of the public sector banks are lower than private sector banks?
Generally public sector banks are NOT as aggressive as private banks in giving away commissions on loans and are more stringent on loan process. DSA’s are always in hurry to close the deal with maximum commission and it is easily facilitated by private banks.
It depends on your needs and time you have. My personal opinion is to remove the middle man (DSA/broker) and talk directly to bank to get a better deal. But if you don’t have the time to do so, you can share your details online and DSA’s will even come at your home to collect your papers and file loan application on your behalf. You just need to pay for their services indirectly with higher processing fees and higher rate of interest.
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