Want a loan agent? Don’t take a loan, sir! Take a loan from us only! In a pinch, we will get you loaned! Such telemarketing calls must also come to you, which is very irritating. But do you know what this loan is? Why is it being provided so quickly now?
What are the different types of loans? If all these questions are also rising, you should read this article entirely on loans because it will help you better understand the loan.
Whenever the idea of a loan comes, the picture of banks emerges. And anyway, if you want a loan today, you must go to the bank. The loan can be any item if it is understood in easy language. Still, mainly the money is considered in it; it has been taken from another person while returning it, along with the principal capital and the interest. I have to return.
Like this, it is an act or act in which money, property, or other material goods are first provided to a needy person. In the future, when that money is withdrawn from that person, he will get the capital of the original money. He also has to return interest or interest and other finance charges. Only this amount is called a loan amount.
Loan or loaning means someone with money provides that to another individual or entity. This is the most critical primary financial product of any bank or NBFC (Non-Banking Financial Company) that they offer to ordinary people.
Everyone knows a little about the loan, but today, I thought about why you should be provided complete information about the loan and how many types there are. Then let’s start without delay.
What is Loan
The loan makes our life easier. In today’s time, the loan has a direct connection to banks. This is probably because banks are the financial institutions that provide loans with interest. At the same time, they offer you loans soon in a very safe and secure manner.
If you have never taken a loan, you probably will not know much about its importance. Because when money is very much needed to cure a significant disease, get children married, build your house, or study your children, loans are the only support in such places.
Because having such a large amount with anyone is very troublesome, there is no need to ask for such a massive amount from friends or relatives. Now, the only way left is to take a loan from the bank.
Loans are handy in times of need, but if you cannot return them, it is best to avoid them.
What Are The Parts Of A Loan?
The loan mainly consists of three components: –
- Principal or borrowed amount or loan amount
- Rate of interest or interest rate
- Loan duration or when you have taken a loan
Whenever you take a loan from someone, whether a bank, a financial institution or a person, whatever amount you take from them is called a Principal Amount or Loan amount. This is the primary money that must be brought back and the interest.
Now let’s talk about the Rate of Interest; this is the interest rate added to the Principal amount as time passes. By the way, no one will give you money without interest, so whatever interest (interest) comes with your loan amount, finally, when you return the loan, it is called the rate of interest amount.
Now, know the loan term; if you take a loan from someone, he will never promise to return you, but he puts a time limit in front of you in which you have to return his money; this is called loan duration.
Loan Range
Loans are broadly divided into two categories, which are secured and unsecured.
Let us now know about the categories of loans: –
Secured
A secured loan is a loan that is backed by collateral or security in the form of assets such as property, gold, fixed deposits and PF (Provident Fund).
For example, if you took a home loan or an auto loan, then a lien is created on your property, and you cannot sell it until you have repaid the entire loan amount, and You can claim sole ownership of the house and vehicle.
Unsecured
An unsecured loan is a type of Private Personal Loan that does not require any collateral, security, or guarantee and can be taken to meet your needs.
The bank or NBFC provides these loans without any security to you, and together, they only see your CIBIL Score and personal track records.
Types Of Loans
Let us now understand what kind of loans Indian people like to take more: –
- Home Loan – Unsecured
- Car Loan – Unsecured
- Education Loan – Secured
- Personal Loan – Secured
- Business Loan – Unsecured
- Gold Loan – Unsecured
Personal Loan
A personal loan is a loan that individuals avail themselves of according to their needs. These loans are more useful when unexpected expenses are raised before you. These loans are usually from a bank or a non-banking financial company (NBFC).
Education loan
The importance of Quality Education is the highest for all students, and for this, they can go to any extent as we know that the price of education is increasing daily. In such an education loan, that is the only way left.
Students apply for an education loan to fulfil their educational requirements. Almost all banks and NBFCs offer education loans in India.
Home Loan
Buying or building a house is a massive dream of all Indians who want to fulfil it. In such a situation, the entire capital accumulated in the house is sacrificed and sometimes falls short. If the dream is fulfilled in such a situation, we can see the only way to take a home loan.
You can take a home loan to buy your new house, renovate it, buy land, etc.
Car Loan or Gold Loan
Everyone wants a good car or car, but we do not have enough money to buy it for a long time. By the way, buying a car is considered to be self-respect. At the same time, there are many advantages, and it provides you with the flexibility of transportation and increases your convenience and functionality.
In such a situation, if you want to take a car loan, you can easily accept it because many banks offer other benefits at attractive interest rates. At the same time, if you do not want to repay simultaneously, you can take EMIs to repay the loan.
Business Loan
Businesses require a lot of investment to run smoothly and pay their start-up expenditures or business extensions. For such works, companies have to take business loans for their financial assistance.
It is a loan that the company has to return after a specific tenure. You can take these business loans for many tasks, such as starting a new firm, business expansion, financing a dealer and vendor, etc.
Gold Loan
A gold loan is a type of secured loan, while banks provide this loan in exchange for gold collateral. Banks offer loans to borrowers for their needs, but they keep their gold jewellery and coins in return while returning them only when you return the amount taken. But there is not much problem with taking it.
Term Loan
A term loan is taken mainly for business purposes and returned within a specified time frame.
It typically has a fixed interest rate, which has to be returned in the monthly or quarterly repayment schedule – and a maturity date is also set in advance. This is a specific type of loan.
A secured term loan usually has a lower interest rate than an unsecured one.
Classification of Term Loans
- Long Term (< 3 years)
- Medium Term (1-3 years)
- Short Term (1 year)
Types Of Loans According To The Type Of Loan Taken
- Open-ended loans
- Closed-ended loans
Open-Ended Loans
These are called those loans that you can take again and again. Credit cards and lines of credit are the most common types of open-ended loans. In both these types of loans, you have a credit limit against which you can purchase.
Each time you make a purchase, there is a decrease in your available credit. This is because the credit limit is fixed. Just as you make payments, your credit limit increases so that you can take the same credit repeatedly.
Closed-Ended Loans
These are called those loans, which, if you take once, you can retake only after repaying it. Here, too, as you continue to refund the loan amount, in the same way, your loan balance also increases, but you cannot loan any more in it. Instead, you can only retake a loan after paying the entire amount.
Examples of closed-ended loans include mortgage, auto, and student or education loans.
Types Of Loans According To Their Repayment Period
If we classify loans according to their repayment period, the name that comes in is Revolving or term loans. Revolving means that by taking this loan, you can spend it, return it and spend it again. The most prominent example of this loan is a credit card.
In this, loans are repaid according to equal monthly instalments (EMIs) in a pre-agreed period.
What Are Some Essential Concepts Related To Loans?
Income: The main concern of lenders (who provide loans) is your repayment capacity. In such a situation, fulfilling the income requirement of the bank is the most important thing for any loan applicant. Therefore, the higher the income, the easier it is to apply for large loans for a long time.
Age: On the side of a still more working-age person (I am not talking about new job workers in this), it will be easier to approve a long-term loan than an adult person or a fresher.
Down payment: This loan is a share of the applicant towards the charge he has applied for the loan. For example, if you have purchased a car worth 10 lakh and the bank has promised you Rs.8 lakh, those saving Rs.2 Lakh are called Down Payment. You pay for this.
Tenure: This is the time limit to complete the loan. If you cannot repay it within that time frame, you have to accept this, and your collateral things can also be confiscated.
Interest: This is the interest the borrower has to provide and the principal amount. Interest rates vary from one loan to another. At the same time, sometimes, from one person to another, it also depends on their credit scores.
Equated Monthly Instalments (EMI): This is the monthly repayment amount the borrower must return to the bank within the pre-determined time frame. In an EMI, the principal + interest is divided equally at that time.
Benefits Of Loans
Let’s learn about the features and benefits of loans.
Having Financial Flexibility: Loans provide you with financial flexibility. It provides you with financial help in your time of need. Taking a loan also gives you some degree of economic freedom and handles your daily expenses correctly while not moving your planned budget here and there.
Easy availability: All types of loans are mostly approved within 48 hours; the condition is that you have already submitted all the necessary documents. Therefore, they can be easily obtained.
Getting the needed amount: You get the money based on your income and financial history.
Having convenient tenure: When taking loans, you can choose how much time you can repay the loan within the time limit. Most of the time, loans are available from 12 to 60 months.
Fired in Tax Benefits: According to the Income Tax Act of 1961, you get the facility of tax benefits in almost all types of loans.
What Are The Main Reasons For Taking A Loan?
Let us now know what the main reasons for taking loans are.
To complete Life Goals: When you want your life goals to be fulfilled, and for this, you need some financial assistance, you need loans very much.
Due to having immediate financial requirements: We do not even know when it happens to someone, so at such a time, you can apply for a loan if it becomes a financial emergency.
To make a financial arrangement properly: If you do not know anything about an incident in front of you, you can loan apply at such a time because you do not want to. If there is any hindrance, then things go smoothly.
What Should Things Be Kept In Mind Before Applying For A Loan?
Getting a loan is easy, but you must pay attention to some things before that because you may regret it later. Let’s focus on some such aspects.
Credit score: Please check your credit history before applying for a loan. This credit history is a type of record that shows the investment you have made, the loans taken and the repayment record in advance. This will show any bank your previous track record and whether you should give a loan. By the way, a good credit score of 750 or above is considered.
Rate of Interest: Please check the loan interest rate once before applying. Because loans that require collateral have lower interest rates than those that do not need them.
Processing fee and other charges: If you apply for a loan and miss payment deadlines, you must pay a processing and penalty fee. These fees depend on the loan amount and bank.
Research to get the best rate for your loan: Research and compare different banks. With NBFCs, you can learn about the best interest rates, EMI, tenure and other charges.
Eligibility To Take Loan
| Particulars | Salaried | Self-Employed |
| Age(Min-Max) | 23 years to 58 years | 28 years to 65 years |
| Income | Rs 25000 | Minimum turnover Rs 40 lakhs |
| CIBIL Score | Above 750 | Above 750 |
Documents For Loan Application
| Salaried | Self-Employed |
| Application form with photograph | Application form with photograph |
| Identity and Residence proof | Identity and Residence proof |
| Last six months’ bank statements | Last six months’ bank statements |
| Processing fee cheque | Processing fee cheque |
| Latest Salary Slip | Proof of Business |
| Form 16 | Business Profile or Previous three years Income Tax returns (self and business)Previous three years Profit/Loss or Balance Sheet |
What Is A Loan EMI Calculator?
Loan EMI Calculator is a handy tool to calculate monthly payable amounts and interest. To calculate the EMI of your loan amount, all you have to do is enter the values of some things like principal Amount (P), Time duration (N), and Rate of interest (R).
How To Take A Loan
It is effortless to apply for a loan in the bank. But before applying, you must know your financial situation because, in the end, you also have to repay that loan amount.
Whatever you need, the decision to loan money should be the last. If you want, you can apply online and follow their steps; you can also go offline by going to your Official branch to talk to the manager and ensure the loan is understood correctly.
What Is The 4 C’s Of Credit, And Why Is It Important To Know Them?
Character
This means the complete financial history of the borrower. That means how the person takes the loan, his previous behaviour, etc. A credit score is used to see this thing.
Capacity
This means that the business’s ability can generate that much revenue so that the loan amount can be repaid. In other words, the ability to repay the borrower’s loan (who takes the loan) is known from the capacity. It is the riskiest if the bank loans a new business.
Capital
This means business capital assets. Capital assets include machinery, equipment, product inventory, and store and restaurant fixtures. Banks always take special care of the company’s capital because if the loan is not repaid, they have to sell these assets, whereas if they cannot meet the loan amount, there is a loss for banks.
Collateral
This means a business owner’s cash and assets to secure his loan. Even if your credit score is good, while you are also generating good income, banks want you to keep all your assets with the bank for security so that the bank loss is reduced if you cannot repay the loan. So.
Can Mutual Funds Be Used For Collateral In Loans?
Borrowers can now easily avail of loans by using Mutual Funds as collateral. If your income exceeds the requirement, you can use mutual funds in such a situation. In this, you have to fill out a form, and along with the rest of the documents, you get a loan according to the amount of your mutual fund.
What Did You Learn Today
I hope you have liked this article, What is Loan? It has always been my endeavour to provide complete information about taking loans to the readers to contact any other sites. There is no need to search that article’s context on the internet. This will also save them time, and they will also get all the information in one place.
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