Cross-selling in personal loans: What it means and why it matters for borrowers

When you apply for a personal loan you may be offered more than just the assured loan amount. Financial institutions often use this opportunity to cross sell several other financial products such as credit cards, insurance policies or top up loans.

While these offers may seem convenient and appealing, still on your part it is essential to know how cross selling works and how it influences your overall borrowing experience.

Elucidating on the same, Nish Bhatt, Founder & CEO, Millwood Kane International, says "Cross-sold products like credit cards or insurance can offer value, but don’t accept them blindly. Ask why they’re being offered, check for hidden costs and charges, and always read the fine print. What starts as a simple loan can snowball into unnecessary debt if you're not alert. Young borrowers especially must question every add-on and borrow only what they truly need."

What is cross selling?

Cross selling refers to the business practice of selling related financial products to a customer who is already buying another service. Now in the context of personal loans this means you might be offered a lucrative credit card, a loan protection insurance plan, another associated insurance scheme or even investment products alongside your loan approval.

Why do lenders do it?

Cross selling helps lenders boost their revenue and deepen their customer base. It also helps the lenders in building stronger relationships with their customers.

For example, offering loan insurance may reduce the lender's risk in case of a default due to unforeseen circumstances. While also helping in generating an additional fee or premium.

Things to watch out for

Borrowers should remain alert to bundled offers as sometimes:

• Extra products may be silently added, increasing your EMI.
• Watch out for pre ticked or selected add-ons in online forms.
• Always ask for a clear cost breakdown.
• Don’t fall for the pressure to buy optional products.
• Unwanted credit cards can hurt your credit score.

Are you obligated to accept?

No. According to RBI guidelines no bank or financial institution can force you or make it mandatory for you to purchase a third party product as a condition for the approval of your loan application. You have the right to decline such offers and to choose what is best for you as per your long term financial goals and aspirations.

Hence, before signing any loan agreement, wait and discuss the entire details of the offered product. Do ask your lending institution for the detailed cost breakdown. Carefully read the fine print to make sure that you are not paying for services you didn’t request.

Being informed assists you in making smart borrowing decisions. It also helps you in avoiding costly extras disguised as ‘value added’ services or benefits.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.