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 loan? If all these questions are also rising in your mind, you should read this article entirely on loan because it will better understand the loan.
Whenever the idea of a loan comes, the picture of banks emerges in mind. And anyway, if you want a loan in today’s time, you have to go to the banks. If the loan is understood in easy language, then it can be any item. Still, mainly the money is considered in it, it has been taken from another person, while returning it, along with the principal money, also the interest. Have to return.
Like this, it is an act or act in which money, property, or any 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 In the future, when that money is withdrawn from that person, he will get the money of the original money. Along with this, he has to return interest or interest and other finance charges. Only this amount is called a loan amount.
Loan or loaning means that a person who has money provides that money 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 the ordinary people. By the way, 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 are there. 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 the 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, then 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 it is very troublesome to have such a large amount with anyone, 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 a handy thing in times of need, while if you are unable to return them, then it is the best thing to stay away from them.
What are the parts of a loan?
The loan mainly consists of three components, which are –
1. Principal or borrowed amount or loan amount
2. Rate of interest or interest rate
3. Loan duration or when you have taken a loan
Whenever you take a loan from someone, whether it is 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 has to be brought back, while also 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 go to return the loan, it is called the rate of interest amount.
Now know what the loan term is, as 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.
Loans are broadly divided into two categories which are secured, and the other is unsecured.
Let us now know about the categories of loans: –
1. 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 in 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.
2. Unsecured – An unsecured loan is a type of 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
1. 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 in front of you. These loans are usually taken from a bank or one of a non-banking financial company (NBFC).
2. 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 day by day. In such an education loan, that is the only way left.
An education loan is a loan that students apply to fulfil their educational requirements. Almost all banks and NBFCs offer education loans in India.
3. Home loan
Buying or building a house is a massive dream of all Indians, while they want to fulfil it. In such a situation, the entire capital accumulated in the house is sacrificed, while sometimes it falls short. If the dream is to be 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.
4. Car loan or Gold Loan
Everyone wants a good car or car, but we do not have enough money to buy it in 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, then you can easily take it because many banks offer car loans with 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.
5. 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.
6. Gold Loan
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 need, 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.
7. TERM LOAN
A term loan is called a loan taken mainly for business purposes and returned within a specified time frame.
1. 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.
2. A secured term loan usually has a lower interest rate than an unsecured one.
Classification of Term Loans
Long Term (<3years)
Medium Term (1-3 years)
Short Term (1 year)
Types of loans according to them
1. Open-ended loans
2. Closed-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 also increases so that you can take the same credit again and again.
These are called those loans, which if you take once, you can retake only after repaying it. Here too, as you continue to repay the loan amount, in the same way, your loan balance also increases, but you cannot loan any more in it. Instead, you can retake a loan only after paying the entire loan amount.
If I talk about the example of closed-ended loans, then it includes mortgage loans, auto loans, and student or education loans.
Types of loans according to their repayment period
If we classify loans according to their repayment period, then the name that comes in is Revolving loans 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 loan: –
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 will be 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), they have aIt 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 payment 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, the ones who have saved Rs.2 Lakh are called Down Payment. This is paid for by you.
Tenure: This is called the time limit that you are given 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 amount of interest that 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 because it also depends on their credit scores.
Equated Monthly Instalments (EMI): This is called the monthly repayment amount that the borrower has to return to the bank within the pre-determined time frame. In an EMI, the principal + interest is put together, and it is divided equally in that time frame.
Benefits of loans
Let’s know about the features and benefits of loans.
1. Having Financial Flexibility: Loans provide you with financial flexibility. It provides you with financial help in your time of need. While taking a loan also gives you some degree of economic freedom and handles your daily expenses correctly while also not moving your planned budget here and there.
2. 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.
3. Getting the amount needed: Based on your income and financial history, you get the money you need.
4. 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 months to 60 months.
5. 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.
1. To complete Life Goals: When you want your life goals to be fulfilled, and for this, you need some financial assistance, then you need loans very much.
2. Due to having immediate financial requirements: We do not even know when it happens to someone, so in such a time, you can apply for a loan if it becomes a financial emergency.
3. To make a financial arrangement properly: If an incident happens in front of you, which you do not know anything about, then you can loan apply in such a time because you do not want to. If there is any hindrance, then things go smoothly.
What are the things to be kept in mind before applying for a loan?
Getting a loan is an easy thing, but you must pay attention to some things before that because you may have to regret it later. Let’s focus on some such aspects.
- Credit score: Before applying for a loan, please check your credit history once. 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 to any bank how your previous track record is and whether you should also give a loan or not. 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 for a loan. Because loans that require collateral have lower interest rates than those which do not need them.
- Processing fee and other charges: If you apply for a loan and miss your loan payment deadlines, you have to 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 from different banks; With NBFCs so that you can get to know about the best interest rates, EMI, tenure and other charges.
|Age(Min-Max)||23 years and 58 years||28 years and 65 years|
|Income||Rs.25000||Minimum turnover is Rs.40 lakhs|
|CIBIL Score||Above 750||Above 750|
Loan Application Documents
|Application form photograph||Application form 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 and Previous three years Income Tax returns (self and business)Previous 3 years Profit/Loss and Balance Sheet|
What is Loan EMI Calculator?
Loan EMI Calculator is a handy tool that you use to calculate monthly payable amount 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 offline also use by going for which your Offical branch is to talk to manager and loan is understood correctly.
What is the 4 C’s of Credit, and why is it important to know it?
This means the complete financial history of the borrower. That means how is the person taking the loan, how is his previous behaviour etc. A credit score is used to see this thing.
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. If the bank gives a loan to a new business, then it is the riskiest for them.
This means business capital assets. Capital assets include the company’s machinery and equipment and product inventory, store, and restaurant fixtures. Banks always take special care of how the company’s capital is 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 of banks.
This means the cash and assets that a business owner mortgages 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 loans by using Mutual Funds as collateral. If your income is less than the requirement, you can use mutual funds in such a situation. In this, you have to fill a form, along with the rest of the documents, you get a loan according to the amount of your mutual fund.
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 in the context of that article on the internet. This will also save their time, and they will also get all the information in one place.
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