Have you ever wondered why an advertisement is made to look attractive?
If you haven't guessed it yet, it's to lure consumers into buying a particular product. What happens if these products leave you broke? Ketan Shah an active investor at the stock market fell for one such bait.
He got tricked into taking a personal loan of Rs 4.5 lakh, which he invested in the stock market. For as long as the market kept scaling new heights, everything seemed alright. But when the market crashed, his hopes came tumbling down too. He not only lost his invested money but is now trapped in a vicious circle of debt since he cannot manage to pay his Equated Monthly Installments (EMIs) for the loan taken. He is the only earning member in this family and has five dependents.
Here is his tale.
How did this happen?
While accessing his trading/demat account, an advertisement kept flashing that offered Ketan a pre-approved loan of Rs 4.5 lakh. He clicked on the tempting advertisement and sent a request to the bank to process the loan. The bank asked him to submit Form 16, PAN card and some other documents. Once the documentation process was done with, the amount was sanctioned.
Ketan was thrilled when he received the amount, thinking he could double the money at the stock market. Of the total loan amount, he spent approximately Rs 80, 000 for his child's education and some sudden household expenses. He invested the remaining amount ie Rs 3.70 lakh in shares.
For the loan taken, he pays an EMI of Rs 13,574. So far, of the total 48 EMIs, he has paid 14 EMIs. Now, Ketan doesn't have enough money to repay his dues, and is desperate to get out of the debt rut.
Pre-approved loan
Rs 4.5 lakh
Child's education
Rs 80,000
Amount invested in shares
Rs 3.7 lakh
Total outstanding amount
Rs 3.85 lakh
Help from friends and family
Rs 1.5 lakh
EMI
Rs 13,574
Total EMIs
48
EMIs paid so far
14
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How should he get out of the loan?
CEO of Apnaloan.com, Harsh Roongta, says, "Ketan should ask for a settlement with the bank. Going to the bank will reduce his total outstanding amount. If he has any investments, he should consider utilising them to repay."
But doing so will spoil Ketan's credit history filed with the Credit Information Bureau (CIBIL). This means he will not get any loan or credit card atleast for the next seven years.
What other options does Ketan have?
Option 1: Liquidate investments: If Ketan has any investments such as national savings certificate, postal savings or assets such as gold; he can use it towards the loan settlement.
Option 2: Borrow from friends and family: Ketan's relatives and friends are willing to help him financially to get him out of loan. So far, he has been able to collect Rs 1.5 lakh. The bank can agree or refuse to this settlement amount.
Option 3: Debt counseling centre: There are debt counseling centers like Abhay, a trust funded by Bank of India and Disha, supported by ICICI Bank that help borrowers to manage their debts. These centers offer free assistance to those caught in credit cards, personal loans and home loans debt trap. "Ketan should go for debt counseling. These centers will help him to negotiate an amount with the bank he has taken a loan from."
Can banks be blamed for giving unsecured loans?
All said and done, personal loans and credit cards are given without any collateral unlike home loans. So, can banks be blamed for it?
"Personal loans do not demand any collateral hence the interest rates are high as 15 to 21 per cent. But that shouldn't be an excuse to default", says Roongta. He explains that the bank has every right to file a legal case against a defaulter. And a borrower has consciously agreed to it by signing the offer documents.
Roongta cautions people to think carefully before committing to a loan. If not, you may end up getting trapped in the game of numbers!
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