Types of Loans
A loan is a deed in which a borrower takes a specific amount of money from a lender (a person or a financial institute which gives money to the borrower) and promises that the same would be returned after the fixed period of time. There is also a fixed rate of interest that is determined at the time of granting the loan. In most of the scenarios there is a fixed money that the borrower returns after a fixed period of time, this is called installment. There are many types of Loans available in India and people use their assets to mortgage them against applying for personal loans and this can be done by paying lower rate of interest. This is because many of us are unaware about all the different types of loans and hence end up doing this.
Banks of India also provide various types of loans and there are many formalities involved while applying for a loan. Let’s understand the complete procedure of application for loan.
The application of a loan is not at all a complex process. The only thing that we all need to consider while taking a loan is producing all authentic documents and submit them on time with the financial institute involved. Different types of documents are required for different types of loans.
The applicant needs to fill the loan application form which the bank provides. All the required information should be filled correctly and the type of loan should also be specified clearly on it.
Once the form is filled there is a CIBIL check that the banks get done in order to count the scores that all the credit card companies give to the applicant. CIBIL keeps a track and record of all the other loans that the applicant had applied for prior to the one for which he/she is applying. A higher CIBIL score increases the chances of approval of the loan application.
The applicant needs to show all the ID proofs and other documents to the banks so that trust can be built between both the parties and loan can be processed. This procedure is the most vital process in the complete process of sanctioning a loan.
Once all the documents are verified and checked the loan is sanctioned against the set amount. The banks needs to approve all the documents of the customer then only the loan is approved.
There are many types of loans one can benefit from. Let’s understand them.
Secured and Unsecured Loans
A secured loan is a loan that you can benefit from by producing your asset. You can take a loan against that asset or assets. For against if you want to take a loan for a new office then you can take it against your home or jewelry. In such a scenario if you are unable to repay the amount the financial institution has all the rights to sell your assets to recover the amount of the loan. The interest rates charged for secured loans is lower as compared to unsecured loans. The amount or value of your assets is assessed by the banks before accepting them as a security against the loan money.
If you have no assets to produce as security against the loan money, that kind of loan is an unsecured loan. For qualifying for this kind of a loan the applicant should hold a good credit history and also should have a good salary. The rate of interest is always higher in case of unsecured loans as compared to secured loans.
Subsidized and Unsubsidized loans
Once you are granted a loan you can apply for subsidized loan or unsubsidized loan and even both.
Subsidized loan is granted to a beneficiary who qualifies for it. People are awarded with this benefit without charging any rate of interest on the amount of the loan. In India these kind of loans are granted to farmers by the government and cooperative banks. This money is utilized by the farmers to buy equipment like tractors, seeds, pumps and rest of the technology needed to help them grow. Many countries also give subsidized loans to students for pursuing higher studies.
On the other hand unsubsidized loans are given at a fixed rate of interest till the borrower pays the complete amount. This loan if payed before the accumulation of the interest, then the interest rates become minimum.
Open-Ended and Closed-Ended Loans
Open Ended loans are the type of loans in which the borrower can take loan several number of times. Once you repay the loan you are again eligible for taking a new loan. There is a credit limit for these types of loans. You need to pay interest only in a scenario once you exceed the credit limit or you have crossed your date of maturity. Moreover, the credit amount is also increased if the payments are made on time. Credit cards and credit lines are the best example of Open ended loans.
Closed Ended loans are fixed loans when you take them. There is a fixed amount that is set to be paid after every fixed period of time in the form of an installment. These installments can be paid monthly, semi- annually, quarterly or yearly. There is also a fixed rate of interest that is charged to the borrower. Also you have the option of repaying the loan amount before the term. Few examples of Open ended loans are mortgage loans and car loans.
Demand loans as the name suggests are the type of loans where the borrower has to repay the loan whenever the lender asks for. This loan is very different from rest of the categories as this loan has no date of maturity and there is no fixed schedule for making the payments. This loan is also termed as Call Loan as the lenders have been associated with people having trust worthy business relationships. These types of loans are very beneficial as these need to be paid whenever the borrower wants.
In India most of the loans are given by banks and you should be aware about the different types of loans that you can benefit from. Moreover, one should also be very clear about the rates of interest offered by the banks and utilize them fully.
Every individual want a car. So for that most of banks provide car loan.
Eligibility terms for car loan-
- It is necessary that one who want car loan between the ages of 21-65 years of age.
- One should be regular employee of state/central government, public sector undertaking, private company or a reputed establishment.
- Or one should be Professionals, self-employed, businessmen proprietary/partnership firm who is an income tax assesse.
- Or one should be a Person engaged in agricultural activities.
- It is necessary that maximum annual income of a salaried employed is 1,00,000 or for self-employed individual is 60,000.
- Loan tenure is 1 years to 7 years.
Education loan is available for the student, who is having brilliant academic records, studying at recognized colleges/universities in India or abroad.
Eligibility terms for education loan:
- It is necessary that one who want education loan between the ages of 16-26 years of age.
- Education loan covered expenses of course fee amount, amount of books and travel expenses.
- Lone amount for studies in India is 10,00,000 or for abroad is 20,00,000
- Repayment period is 5-7 years.
Home loan is the one of the fastest moving financial banking product. Most of the repeated bank provide home loan in India.
Eligibility terms for home loan:
- It is necessary that one who want Home loan between the ages of 21-70 years of age.
- It is necessary that maximum annual income of a salaried employed is 1,00,000 and for self-employed individual is 1,50,000.
- Lone amount for the salaried employed is 20, 00,000 and for self-employed is 2’00,00,000.
- Loan tenure is 5 years to 20 years.
Personal loans are the credits which a bank offers to an individual to full-fill their demands like home renovation, a getaway with family or for reimbursing the credit card liabilities etc.
Eligibility terms for personal loan:
- It is necessary that one who want personal loan between the ages of 21-65 years of age.
- It is necessary that maximum annual income of a salaried employed is 1,20,000 and for self-employed individual is 1,50,000.
- Lone amount for the salaried employed is 50,0000 and for self-employed is 15,00,000.
- Loan tenure is 1 years to 7 years.
Loan against shares:
Loan against shares is runs on fix property of owner. It is very easy to get it if one can have their owned property as guarantee against loan.