We may not always have the money we require in certain conditions or to buy some things. Hence in such cases, individuals and businesses/firms/institutions go for the choice of borrowing money from lenders. When a lender gives money to an individual or entity with some guarantee or basis of trust that the recipient will repay the money with some additional benefits, such as an interest rate, and the process is called lending or taking a loan. A loan has three parts – principal or the borrowed amount, rate of interest, and period for which the loan is to utilize.
So, many favors borrowing money from a bank or a trusted non-banking financing company (NBFC) as they stick to the government policies and are trustworthy. Lending is one of the primary financial services that any bank or NBFC (Non-Banking Financial Company) offers.
Types of Loans (Based on Security Provided)
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Secured Loans
These loans require the borrower to mortgage collateral for the money taken. So, in a situation in which the borrower is unable to repay the loan, the bank has the right to make use of the collateral to recover the due payment. The interest rate for such loans is much less in comparison to unsecured loans.
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Unsecured Loans
Unsecured loans are those that do not require any collateral for a loan. The bank analyses the history with the borrower, the credit score, and other factors to ascertain if the loan should be approved or not.
Types of Loans (Based on the Purpose)
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Education Loan
Education loans are financing instruments that help the borrower pursue education. The course can be an undergraduate degree, a diploma/certification course, or a postgraduate degree from a reputed institution/university. So, there has to be an admission pass given by the institution to get the financing. The financing is accessible both for domestic and international courses.
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Personal Loan
At any time there is a liquidity issue, you can go for a personal loan. The reason for taking a personal loan can be anything from repaying an old debt, going on vacation, funding for the downpayment of a house/car, and medical emergency to purchasing big-ticket furniture or gadgets. So, personal loans are given based on the applicant’s history with the lender and credit score.
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Vehicle Loan
Vehicle loans finance the purchase of four-wheeler and two-wheeler vehicles. Additionally, the four-wheeled vehicle can be a new one or a used one. Based on the on-road price of the vehicle, the loan amount is to determine by the lender. So, you may have to get ready with an advance payment to get the vehicle as the loan rarely provides 100% financing.
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Home Loan
Home loans are there for people to receive funds to purchase a house/flat, construct a house, renovate/repair an existing house, or purchase a plot for the construction of a house/flat. In this scenario, the property will be with the lender and the ownership will be transferred to the rightful owner on fulfillment of repayments.
What are the Eligibility standard and documents required for salaried individuals?
A salaried person is eligible for a personal loan by meeting the following eligibility standard –
- The applicant’s age should be between 22 to 58 years
- The applicant must have a monthly income of a minimum of Rs.15,000
- The applicant should have a minimum of one year of working experience
Documentation
- The documents required to set up your credentials like Voter Card, Aadhaar Card.
- Proof of identity and proof of residence.
- Income documents – a copy of the bank statements of the previous 6 months
- Employment Certificate – a certificate stating 1 year of regular employment
What are the Eligibility standard and documents required for self-employed individuals?
A self-employed person is eligible for a personal loan by meeting the following eligibility criteria –
- The applicant’s age should be between 22 to 58 years
- The applicant should have a monthly income of a minimum of Rs.15,000
- The applicant should have a minimum of one year of working experience
Documentation
- The documents required to set up your credentials like Voter Card, Aadhaar Card.
- Proof of identity and proof of residence.
- In addition, income documents – salary slip for the previous three months.
The workings of Loans
Here is how the loan process works. When someone needs money, they apply for a loan from a bank, government, corporation, or any other organization. Additionally, the borrower may require to provide specific details such as the reason for the loan, their financial history, Income Statements, and other information. Also, the lender reviews the information comprising of a person’s debt-to-income (DTI) ratio to see if the person can repay the loan back. Based on the applicant’s creditworthiness, the lender either rejects or approves the application.
In addition, the lender must provide the basis on which the loan application may reject. Also if the application is approved, both parties sign a contract that defines the details of the agreement. The lender advances the take of the loan, after which the borrower must repay the amount comprising of any extra charges such as interest. Connect with Credit My Debt for more details.
