Giving a loan or a loan means lending money to another person or entity. A loan has three components – the principal or amount lent, interest rate and tenure or period of the loan. It is one of any bank or NBFC’s (Non-Banking Financial Company) primary financial products.
CATEGORY OF LOANS
Loans may usually be classified as secured or unsecured. Collateral loans or guarantees, such as real estate, gold, fixed deposits, and PF are secured loans, among others. If the bank or NBFC agrees to issue loans without cover, on a strictly CIBIL score, it becomes unsecured loans.
Loans are categorised according to the repayment duration – rotating credits or term credits. Revolving means a loan which can be invested again, reimbursed and spent. An example is a credit card. In a pre-agreed duration, the loans repaid in equivalent monthly payments (EMI) are called term loans.
TYPES OF LOANS
The common types of loans that people avail are:
- Home Loan
- Car Loan
- Education Loan
- Personal Loan
- Business Loan
- Gold Loan
IMPORTANT CONCEPTS OF A LOAN
- Income: Your repayment potential is the biggest concern for the lenders. The most critical requirements for a loan applicant are therefore fulfilling the Bank’s income requirement. Increased revenue allows the application of larger loans with a longer holding.
- Age: a worker with more age (though not without a work experience of at least 2-3 years) will be more likely to get a long-term loan accepted than an older retired or fresher person.
- Down payment: this is the applicant’s portion of the debt for which the loan is needed. The remaining sum would be a down payment, for example, if you intend to buy a 1 Cr home, and the Bank decides that it will lend you a loan amounting to Rs. 80 lakhs.
- Tenure: This is the lender’s reimbursement period. The bank will be able to collect the property or even seize it if you refuse to repay or skip an EMI.
- Interest: This is the money paid to the borrower by the lender to distribute a loan.Interest rates differ between loans and loans and even between individuals according to their loan performance.You may select the fixed (same tenure) or floating interest rate
- Equated Monthly Instalments (EMI): This means that the borrower can pay back the loan to the lender-month. An EMI includes the principal + interest borrowed.
FEATURES AND BENEFITS OF LOANS
- Financial Flexibility: Loans allow you to satisfy your financial needs or lifetime expenses. A loan allows you a certain amount of financial freedom to make substantial payments or to invest one-off costs without adjusting your budget.
- Easy availability: All kinds of loans are accepted as quickly as 48 hours, depending on the receipts of the banker and often on the collection price to be filled.
- Get required amount: The amount you need as a loan will be paid out to you depending on your income and financial backgrounds.
- Convenient tenure: Depending on the bank and the amount, a loan is ample. Loans for a term of twelve months to sixty months or more are generally available.
- Tax Benefits: Under the Income Tax Act of 1961, almost all kinds of loans provide tax benefits.
WHY TAKE A LOAN?
- Life Goals: Whether a home, car or higher education is a reality if you want financial support for making your life goals a reality.
- Immediate financial requirements: If you have a financial emergency, you should apply for a loan.
- To make financial arrangement for unforeseen expenses: You should apply for a loan to ensure that matters go smoothly in an unexpected state where you have debts to clear such as social activities, hospitalization, etc.
POINTS TO CONSIDER BEFORE APPLYING FOR A LOAN
Taking a loan is a major financial decision that calls for informed decision-making. Here are some:
- Credit score: You must review your credit history before applying for a loan. If any and a refund record, a credit history is a record of your past borrowings. This will clarify whether you have re-payment or delayed past payments. The 750 and above credit score is outstanding.
- Rate of Interest: Before you apply, check the loan interest rate. Loans needing collateral are usually lower than non-consuming loans.
- Processing fee and other charges: You will be likely to pay a processing and interest fee respectively if you apply for a loan and meet the loan payment deadlines. These charges are determined by the amount of the loan and the bank.
- Research to get the best rate for your loan: Research and compare the best interest rates, EMI, tenure and other charges that suits you from different banks and NBFCs.
ELIGIBILITY FOR LOAN
|Age(Min-Max)||23 years to 58 years.||28 years to 65 years.|
|Income||Rs.25, 000.||Minimum turnover of Rs.40 lakhs.|
|CIBIL Score||Above 750.||Above 750.|
*The above data is indicative in nature.
DOCUMENTS FOR LOAN APPLICATION
|Application form with photograph||Application form with passport photograph.|
|Identity and Residence proof||Identity and Residence proof.|
|Last 6 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 three years Profit/Loss and Balance Sheet.|
LOAN EMI CALCULATOR
The EMI Loan Calculator is a valuable method for calculating the monthly amount payable and the total interest. You just need to enter the principal (P), time duration (N) and interest rate (R) values to calculate the EMI for your loan.
HOW TO APPLY FOR A LOAN?
It is easier than one would imagine to apply for a bank loan. You should however know your financial condition before applying, since you must repay the cost of the loan later. You need first to understand what you want with all the requisite paperwork and different eligibility requirements and if you consider this to be an appropriate option for you then you can go to the bank and talk to the loan manager or take this online.
MUTUAL FUNDS CAN BE USED AS COLLATERAL FOR LOANS
Borrowers will also take a Mutual Funds loan and it can be used as collateral for a loan. If your revenues for the appropriate loan are lower than expected, the mutual fund investment will compensate for the lower income and also increase your right to a loan. In order to use a loan against a mutual fund, the holder of the mutual funds must fill out a request for a loan and present it to the bank with all other documents. The amount of the loan is a proportion of the value of the units kept on the day the loan is sanctioned.
DIFFERENT MODES OF SAVING
Your investments are an ideal solution to any financial need.
Some savings strategies include Savings Account, RD (Recurring Deposit) and SIP in reciprocal funds and more.
Let’s find out how best to save money, provided you save Rs. 10 lakh in five years.
|Type||Monthly Investment||Interest Rate||Duration (Years)||Amount on Maturity|
|Savings Account||Rs. 16,666||4%||5||11.10 Lakhs|
|Recurring Deposit||Rs. 16,666||6%||5||11.70 Lakhs|
|SIP in Mutual Funds||Rs. 16,666||18%||5||16.30 Lakhs|
SIP is therefore the most useful savings system from the above table; as SIP you can save regularly keep your long-term saving objective in view and become financially secure.