Different Types of Loans in India :- Secured Loans ,Unsecured Loans.
Types of Secured Loans :- Home Loans, Gold Loans, Vehicle Loans, Loan Against Property.
What is a loan?
Definition of loan can be described as a property, money, or other material goods that is given to another party in exchange for future repayment of the loan value plus interest and other finance charges.
A loan can be for a specific, one-time amount, or it may be availed as an open-ended line of credit up to a specific limit. Loans come in different forms like personal, commercial, secured, and unsecured loans.
A loan is a debt incurred by an individual or some entity.
The other party in the transaction is called a lender – it is usually a government, financial institution, or corporation.
They lend the required sum of money to the borrower. In return, the borrowers agree to pay a certain set of terms, including any finance charges, interest, etc. with the initially borrowed money.
How does the loan process work?
When you need money, you apply for a loan from a corporation or a bank. You are required to provide
specific details such as why you need the loan, you will have to disclose your financial history, Social Security Number (SSN), and other information which can vary from lender to lender.
The lender will review your application and check your debt-to-come ratio to evaluate if you can pay the loan back to them.
Why and when loans are given?
Loans are disbursed for many reasons.
A borrower may need a loan for purchasing an item, debt consolidation, business ventures, renovations, or investing. Business loans can help companies expand their operation.
In short, loans allow for the growth in the overall money supply in an economy and open up competition by lending to new businesses.
An important factor while taking a loan
For a borrower, one of the most important factors while taking a loan is interest rates.
Loans with higher interest rates will cost more money to the borrower – he has to pay higher monthly payments or take longer to pay off the loan compared to the loan with a lower interest rate.
For example, if you borrow $5000 on a 5-year installment for a term loan with a 4.5% interest rate, you will have to pay a monthly payment of $93.22 for the next five years.
However, if your interest rate is 9%, you will have to pay $103.79 for the same period.
What questions should one ask while getting loan?
Few questions that one should ask while getting a loan are:
How long will it take to get the money?,
What is the interest rate on the loan?,
What is the term of the loan?
And Are there any fees?
What are the three common classifications of loans?
Loan can be classified into three main categories, namely, unsecured and secured, conventional, and open-end and closed-end loans.
What factors affect loan approval?
Factors such as credit score, debt-to-income ratio, down payment, work history & value and
condition of the home affect loan approval.
What Is a Loan?
The term loan refers to a type of credit vehicle in which a sum of money is lent to another party in exchange
for future repayment of the value or principal amount.
In many cases, the lender also adds interest or finance charges to the principal value, which the borrower must repay in addition to the principal balance.
Loans may be for a specific, one-time amount, or they may be available as an open-ended line of credit up to a specified limit.
Loans come in many different forms including secured, unsecured, commercial, and personal loans.
A loan is a form of debt incurred by an individual or other entity. The lender—usually a corporation, financial institution, or government—advances a sum of money to the borrower.
In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions.
In some cases, the lender may require collateral to secure the loan and ensure repayment. Loans may also take the form of bonds and certificates of deposit (CDs). It is also possible to take a loan from a 401(k) account.
The Loan Process
Here’s how the loan process works: When someone needs money, they apply for a loan from a bank, corporation, government, or other entity.
The borrower may be required to provide specific details such as the reason for the loan, their financial history, Social Security number (SSN), and other information.
The lender reviews this information as well as a person’s debt-to-income (DTI) ratio to determine if the loan can be paid back.
Why Are Loans Used?
Loans are advanced for a number of reasons, including major purchases, investing, renovations, debt consolidation, and business ventures.
Loans also help existing companies expand their operations. Loans allow for growth in the overall money supply in an economy and open up competition by lending to new businesses.
The interest and fees from loans are a primary source of revenue for many banks as well as some retailers through the use of credit facilities and credit cards.
Components of a Loan
There are several important terms that determine the size of a loan and how quickly the borrower can pay it back:
Principal: This is the original amount of money that is being borrowed.
Loan Term: The amount of time that the borrower has to repay the loan.
Interest Rate: The rate at which the amount of money owed increases, usually expressed in terms of an annual percentage rate (APR).
Loan Payments: The amount of money that must be paid every month or week in order to satisfy the terms of the loan. Based on the principal, loan term, and interest rate, this can be determined from an amortization table.