What is a Loan and How to Apply it?

Need a loan? Don’t take a loan, sir! Take the loan from us! We’ll get a loan in a pinch!

You must also have such very telemarketing calls, which is really irritating. But do you know what this loan is? Why is it being provided so easily now? What are the different types of loans? If all these questions are also pouring in your mind, then you must read this article in full (what is a loan in Hindi) because it will make it easier for you to understand the loan better.

Whenever the idea of a loan comes, then the picture of banks in the mind definitely emerges. And no matter what, in today’s time, if you want a loan, then you have to go to the banks.

If the loan is understood in easy language, then it can be any commodity, but mainly the money is understood in it, it is taken from another person, at the same time, while returning it, the interest along with the principal money has to be returned.

So to say, it is an act or act in which first money, property or any other material goods are provided to a needy person, then in the future, when that money is withdrawn from that person, he has to return the interest or interest and other finance charges along with the principal money. This amount is called a loan amount.

Giving a loan or lending means a person who has money is giving that money to another individual or entity. It is the most prominent primary financial product of any bank or NBFC (Non-Banking Financial Company) that they offer to the common people.

By the way, everyone knows a little about the loan, but today I thought that why not give you people complete information about the loan and how many types of it are there. Then let’s start without delay.


What is a loan?


Loan

Loans make our lives easier. In today’s time, loans have a direct connection with banks. This is probably because banks are the financial institutions that offer loans with interest. At the same time, they provide you with loans soon in a very safe and secure way.

If you have never taken a loan yet, then you probably don’t know much about its importance.

Because when there is a great need for money, such as to treat a big disease, to get your children married, to build your house or to educate your children, then in such places, loans stand as the only support, because it is very painful to have such a huge amount of money with anyone, Be it a friend or a relative, they cannot even be asked for such a large sum of money. Now there is only a way to get a loan from the bank.

Loans are a very useful thing in times of need, while if you are unable to return them, then it is best to stay away from them.


What are the parts of the loan?


There are mainly three components of a loan, which are:

  1. Principal or borrowed amount or amount taken in loan
  2. Rate of interest or rate of interest
  3. Duration of the loan or when you have taken the loan for then

Whenever you take a loan from someone, whether it is a bank, a financial institution or a person, then whatever amount you take from them is called the principal amount or loan amount. This is the principal money that has to be brought back and also interest with it.

Now let’s talk about the rate of interest, it is the interest rate that is added to the principal amount as time passes. By the way, no one will give you money without interest, so whatever interest comes by associating with your loan amount, in the end, when you go to return the loan, it is called the rate of interest amount.

Now you know what is the duration of the loan, like if you take a loan from someone, then he will not promise to return you, but he puts a time limit in front of you within which you have to return his money, this is called the loan duration.


Category of Loan


Loans are broadly divided into two categories which are secured and the other is unsecured.

Let’s now know about the categories of loans:-

  1.  Secured – A secured loan is a loan that is backed by collateral or security, that too in the form of assets such as assets, gold, fixed deposits and PF (Provident Fund). For example, if you took a home loan or an auto loan, a lien is created in your property and you can’t sell it until you’ve repaid the entire loan amount and claim sole ownership of your home and vechile.
  2. Unsecured – An unsecured loan is a loan which is a type of personal loan and which does not require any collateral, security or guarantee and can be taken to meet your needs. These loans are provided by the bank or NBFCs to you without any security and also they only look at your CIBIL score and personal track records.

Types of Loan


Let’s now understand which types of loans Indian people prefer to take more:-

1. Personal Loan

A personal loan is a loan that is availed by individuals according to their needs. These loans are more useful when you have unexpected expenses in front of you. These loans are usually taken from a bank or a non-banking financial company (NBFC).

2. Education loan

The importance of quality education is the highest for all the students and for this they can go to any extent. As we know, the price of education is increasing day by day. In such a situation, an education loan is the only way left.

An education loan is a loan that students apply to meet their educational requirements. Almost all banks and NBFCs offer education loans in India.

3. Home loan

Buying or building a house is a big dream of all Indians, while they also want to fulfill it. In such a situation, the entire capital of the deposit is sacrificed in building the house, sometimes it is also reduced. In such a situation, if we have to fulfill the dream, then we see the only way to get a home loan.

You can take a home loan to buy your new home, renovate it, buy land, etc.

4. Car loan or vechila loan

The desire for a good car or car is all there is but in a long time we don’t have enough money to buy it. By the way, buying a car is considered to be a matter of pride, while it also has many advantages such as it gives you the flexibility of transportation, it also increases your convenience and functionality.

In such a situation, if you want to take a car loan then you can easily take it because there are many banks that offer car loans that also with other benefits in attractive interest rates. At the same time, if you do not want to repay at the same time then you can take the option of EMIs to repay the loan.

5. Business Loan

For businesses to run smoothly, they need a lot of investment to pay for their start-up expenses or business extensions. For such jobs, companies have to take business loans for their financial assistance.

It is actually a loan that the company has to pay back after a specific tenure. You can take these business loans for many tasks such as starting a new firm, for business expansion, financing dealers and vendors, etc.

6. Gold Loan

A gold loan is a type of secured loan, while this loan is provided by the banks in exchange for gold collateral.

Banks provide borrowers with loans they need, but in return, they keep their gold jewelry and coins, while they return it when you return the amount you have taken. But it doesn’t take much trouble taking it.

7. Term Loan

Term loans are those loans that are taken primarily for business purposes and have to be returned within a specified time frame.

  1. It typically has a fixed interest rate, which has to be returned to a monthly or quarterly repayment schedule – and it also has a maturity date already set. It is a secure type loan.
  2. A secured term loan has a generally lower interest rate than an unsecured one.

Classification of Term Loans


Long Term (<3years)

Medium Term (1-3 years)

Short Term (1 year)


According to The Types of Loans They Apply


1. Open-ended loans

2. Closed-ended loans


Open-Ended Loans


These are called loans that you can take over and over 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, your available credit is reduced. That’s because the credit limit is fixed. As you make payments, your credit limit also increases so that you can take the same credit over and over again.


Closed-Ended Loans


It is called those loans that you are able to take once you have taken it, then you can only take it again after you repay it. Here too, as you keep paying the loan amount, your loan balance also increases, but you can’t get any more loans in it. In fact, only after paying the full loan amount can you take the loan again.

If you 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 up is revolving loans or term loans. Revolving means that you can take this loan, spend, return and spend it again. The biggest example of this loan is the credit card.

In this, loans are refunded according to equal monthly installments (EMIs) in a pre-agreed period.



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. So the more income there is, the easier it will be to apply for large loans, that too for a long time.

Age: On the side of a person who has more working-age left (I’m not talking about new job-seekers), they will find it easier to approve a long-term loan than an adult or a fresher.

Down payment: This loan is the share of the applicant towards the payment for which he has applied for the loan. For example, if you have purchased a car worth 10 lakh and the bank has promised to give you Rs.8 lakh, the Rs.2 lakh that is left is called ki down payment. It’s paid for by you.

Tenure: This is the time limit that is given to you to complete the loan. If you can’t repay it within that time frame, you also have to pay for it and your collateral items can be confiscated.

Interest: This is the amount of interest that the person taking the loan has to provide with the principal amount. Interest rates vary from one loan to another. Sometimes from one person to another because it also depends on their credit scores.

Equated Monthly Appointments (EMIs): These are the monthly repayment amounts that the borrowers have to return to the bank within the pre-decided time frame. In an EMI, both principal + interest are put together and divided equally over that time frame.


Benefits of Loan


Let’s know about the features and benefits of loans.

  • Having financial flexibility: Loans provide you with financial flexibility. It provides you with financial help in your time of need. At the same time, by taking a loan, it also gives you some degree of financial freedom and at the same time handles your daily expenses properly, at the same time, it does not move your planned budget around.
  • Easy availability: All types of loans are mostly approved within 48 hours, the condition is that you have already submitted all the necessary documents. So they can be easily obtained.
  • Amount of money you need: Based on your income and financial history, you get the money you need.
  • Convenient tenure: While taking loans, you can choose how much time frame you can repay the loan. Most of the time, you get loans for 12 months to 60 months.
  • Benefits of Tax Benefits: According to the Income Tax Act of 1961, you get the benefits of tax benefits in almost all types of loans.

Eligibility to Apply a Loan


ParticularsSalariedSelf-Employed
Age(Min-Max)23 years से 58 years28 years से 65 years
IncomeRs.25000Minimum turnover हो Rs.40 lakhs
CIBIL ScoreAbove 750Above 750

All these data are just an indicator of nature.


Documents for Loan Application


SalariedSelf-Employed
Application form with photographApplication form with photograph
Identity and Residence ProofIdentity and Residence Proof
Bank Statement of last 6 monthsBank Statement of last 6 months
Processing fee chequeProcessing fee cheque
Latest Salary SlipProof of Business
Form 16Business Profile and Previous 3 Years Income Tax Returns (Self and Business) Previous 3 Years Profit/Loss and Balance Sheet

What is a Loan EMI Calculator?


A loan EMI calculator is a handy tool that you use to calculate monthly payable amounts and interest.

To calculate the EMI of your loan amount, you just have to enter the values of certain things such as principal amount (P), time duration (N), and rate of interest (R).


How to Apply a loan?


Loan

It is very easy to apply for a loan in the bank. But before applying, you must know your financial situation, because, in the end, you have to pay that loan amount.
The decision to loan as much money as you need should be the final one. You can apply online if you want and follow their steps, while you can also apply offline, for which you have to go to the official brand and talk to the manager and understand the loan correctly.


What are the 4 C’s of Credit of a Loan and Why is it Important to Know?


1. Character

This means the entire financial history of the borrower. That means how the person taking the loan is, what is his earlier behavior, etc. A credit score is used to see this.

2. Capacity

This means the ability of the business so it can generate enough revenue to pay the loan amount. In other words, capacity shows the ability of the borrower (who takes the loan) to get the loan defaulted. If the bank gives a loan to a new business, then it is the riskiest for them.

3. Capital

This means capital assets of the business. Capital assets include the company’s machinery and equipment, along with product inventory, stores and restaurant fixtures. Banks always take special care of how the capital of the company is because if the loan is not repaid then they have to sell these assets, at the same time, if they cannot meet the loan amount, then the banks lose in it.

4. Collateral

This means the cash and assets that a business owner pledges to secure their loan. Even if your credit score is good, you are also generating good income, banks want you to keep all your assets with the bank on the basis of security so that the loss of the bank is reduced if you can’t repay the loan.


Can Mutual Funds Be Used in Loans for Collateral?


Borrowers can now easily use mutual funds on collateral to take loans. If your income is less than necessary, then you can use mutual funds in such a situation.

In this, you just have to fill in one form, along with the rest of the documents, you get the loan according to the amount of your mutual fund.

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