أنشئ حسابًا أو سجّل الدخول للانضمام إلى مجتمعك المهني.
Well - I will rather reframe the question as "How do People allow themselves to be robbed by banks". Even behind simple banking products , there is a well thought out strategy. This applies more to retail banking - when consumers deal with Credit cards, personal loans, and other such retail funded products .
Firstly the growth of consumerism has destroyed many a middle income and lower income (those that can afford credit cards and loans) households, as these are easy targets by banks to be lured into spending excessively, even when one does not need them. Thus there are two partners in crime - the bank that gives the consumer the credit to buy, and the retailer (grocer, merchandiser etc) who sells branded and unbranded products at excessive prices. Most consumers do not check the prices when they buy through credit cards, hence end up paying more for less value!
coming back to credit cards - if the consumer is smart enough to settle bills by due date - he is safe - but the trick lies in making the consumer feel that revolving credit is a better option - and the banks convince the consumer into believing that spending now and paying at one's convenience is the easy way out! This is where the consumer does the major blunder and falls into a debt trap. There are two evils here - one the very deceptive monthly interest rates - which are proudly advertised as2.5% or2.99% per month - but actually the same works out to a whooping30 to36% per annum! Thus when a consumer buys a good words100$ and uses revolving credit - he pay nearly200$ if he uses revolving option and pays in one year's time - because he does not understand the trap of compound interest.
The other traps in credit cards are hidden charges, fees, penalties - which most consumers don't understand as they don't read the terms and conditions.
The other trap in retail banking products, where consumers allow themselves to be robbed - is whey they take personal loans. The concept of Equated Monthly instalment (EMI) makes a consumer believe that he is paying equal principal and interest - which is not the case. Banks recover most of the interest in the first12-18 months - leaving most of the principal still intact - during2/3rds of the tenor of the loan. If a consumer prepays the loan, he is a big loser. Even if he does not prepay the loan - he still is a loser as he is told that he will have a flat or reducing balance interest of8% (for example). But the IRR - Internal Rate of Return - which is the actual cost to the consumer - works out to almost twice the flat or reducing balance interest rate - if one works out carefully using excel spreadsheet.
The other charges which make consumers to be robbed are processing fees and other penalties for late payment etc. - which increases the actual cost to almost twice or more - if the consumer is not careful.
There are also traps when you open your savings and current account - in terms of minimum balance. Please understand the terms and conditions of every product that you avail from a bank and compare and seek advice .
