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Loan Schemes

Car Finance	Two Wheeler Finance	Commercial Veh. Finance	Banks / Financial institutions
The First Step	Monthly Rent System	Loan Schemes	Hire Purchase

Advance EMI Schemes

Still another variation of the margin money scheme. The bank offers to give the complete amount as loan, but, requires you to pay some amount as EMIs in advance. It achieves two things:
- You are giving a down payment, thereby reducing the lending amount and the risk along with it.

Also, the bank stands to gain on the amount of interest that it gets. Firstly, it does not give the 100% loan it had promised. Secondly, the interest that it charges on the amount that it has lent is in actuality greater. This is because, it calculates the interest rate on what it has lent, but forgets about the sum it has already taken in advance. Very simply put, if the bank lent you Rs. 200 and collected Rs. 100 as advance EMI, it will get its 16% on the Rs. 100 that it has actually lent, by telling you that it is lending to you at 8% on the Rs. 200 that you (ostensibly) borrowed.

Processing Fees
This is the most innocuous-seeming (and popular) method. At the beginning of the period, the bank requires you to pay 2%-4% (typically) of the loan amount as "processing" fees. In effect, the bank is lending you lesser than it had promised which increases the effective rate that you are paying. For example, if a bank lends you Rs. 1 lakh at 16% for one year (12 EMI's), and charges you 3% as processing fees, you are in effect paying an interest of 22%!

Most schemes are a combination of these base versions. A company might offer a loan at a price of 5.9% for a 12-month tenure, with four EMI's payable in advance, and a processing fee of 2%. The effective rate - a whopping 21.5%! And you thought you were paying 5.9%!

Margin Money Scheme || Hire Purchase

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