In today’s modern world, loans are no longer an unknown term. People opt for loans for various purposes such as marriage, travel, buying a house, higher education, and many more. If we discuss what a loan is or what the meaning of a loan is, basically, a loan is an amount taken from a person or organization that we use to manage some unexpected expenses or financial emergencies. When an individual borrows money from a bank or other financial institutions for their needs, it is called a loan. The borrower has to repay the loan amount along with interest to the lender within a fixed time interval.
Loan means debt, a word from which people used to shy away in the past. In the old days, people considered taking loans as against their honor. Even in society, those who took loans were looked down upon. But now, the times have changed completely. An old saying ‘borrowing to indulge in luxuries’ perfectly fits today’s scenario. In this world of show-offs, people are buying things more for display and less out of necessity. Banks have taken advantage of this weakness and are offering easy and affordable loans to customers. Now, ‘no-cost EMI’ is also gaining popularity. People have become so accustomed to buying things on loan that banks are now offering loans for almost everything. Amidst so many loan options, you might be wondering how many types of loans are available in the country.
Types of Loan
In India, there are various types of loans available, which are categorized into two categories based on the purpose of the loan-Secured and Unsecured
Secured Loan
Secured loans should be backed by collateral equivalent to the borrowed amount. The collateral property is secured to operate under the lender’s authority, which can be seized if the borrower fails to repay the loan. Secured loans are further divided into the following categories, which will help you understand what types of loans are there:
Gold Loan
Gold has been considered one of the most popular asset classes for a long time. For a gold loan, you need to pledge gold jewelry or coins as security.
Loans Against Securities (LAS)
Loans against securities are loans where you pledge your shares, mutual funds, or life insurance policies against your loan amount to the bank as collateral. Loans against securities are usually offered as an overdraft facility in your account after you deposit your securities.
Loan Against Property (LAP)
One of the most common types of secured loans is a loan against property. To obtain necessary finance, you can mortgage any residential, commercial, or industrial property. The loan amount offered varies by the lender and is equivalent to a specific percentage of the property’s value.
Home Loan
Home loans are a type of secured credit that allows you to buy or build your dream home. The types of home loans offered in India are:
– To finance the construction of a new home
– For renovation of an existing home or a new home
Vehicle Loan
A vehicle loan is a type of loan provided by banks and financial institutions to customers to purchase vehicles. Under this loan, customers can buy their desired car, bike, or other vehicles immediately and repay the loan amount gradually in the form of EMI (Equated Monthly Installment). The interest rate and tenure of a vehicle loan may vary, depending on the customer’s credit history and lender’s
Unsecured Loan
Financial institutions offer various types of loans without any collateral, which depends on various factors such as repayment history, the borrower’s credit score, and other considerations. However, compared to other loans, these types of loans have higher interest rates in India. The following are many forms of unsecured loans that you can use for your needs:
Corporate/Business Loan
Corporate/business or business loans are provided to small and medium-sized firms to help them meet various requirements that help the company flourish, such as buying equipment, purchasing stock, paying employees’ salaries, marketing expenses, paying business loans, administrative expenses, and even starting a new branch.
Personal Loan
A personal loan is the most common type of unsecured loan that provides quick cash. It is available at a higher interest rate compared to secured loans because it is an unsecured loan. If you have a good credit score and a high and consistent income, you can get this loan at a cheaper interest rate. A personal loan can be used for various things, including:
– Marriage expenses
– Vacation or foreign travel
– Education loan, etc.
What is Term Loan Meaning
The term loan means a specified amount with interest is given for a fixed period, usually between one to ten years, and repayment is done. Let’s discuss further what types of personal loans are there. Term loans have three main classifications: short-term loans, intermediate-term loans, and long-term loans. This classification depends on the time period, i.e., for how long the money is borrowed. Short-term loans can be for buying household appliances or long-term loans for buying a house or intermediate-term loans for buying a car.
Conclusion
We saw what a loan is and how many types it has. A loan can provide financial assistance to an individual and fulfill their needs. Personal loans come in many types, such as general personal loans, car loans, home loans, etc. Each of these types has its characteristics, and its usage depends on the individual’s needs. Moreover, in today’s modern world, applying for a loan online has become easy. This arrangement makes applying for a loan easy and fast. In the online process, you need to fill out a specified form, submit required documents, and your loan gets approved by the suitable financial institution.
Note: EMI stands for Equated Monthly Installment, which is a fixed payment amount paid by a borrower to a lender at a specified date each calendar month.
Step-by-Step Guide to Taking a Bank Loan
Bank loans can help you achieve your financial goals. But applying for a loan can be confusing. We’ll show you the steps to follow, one by one. This way, you’ll know what to do and make good choices.
Step 1: Determine Your Financial Needs
Assess your current financial situation and disclose the purpose for which you need the loan, such as buying a house, starting a business, or consolidating debt. A clear understanding of your needs will help you choose the most suitable loan product.
Step 2: Research Loan Options
Consider various banks offering different loan products, such as repayment terms, interest rates, and fees. This will enable you to select a loan option that meets your requirements.
Step 3: Check Your Credit Score
Obtain a copy of your credit report from a credit bureau and review it to ensure accuracy. Your credit score plays a crucial role in loan approvals and interest rates.
Step 4: Gather Required Documents
It is essential to have all the necessary documents ready, which typically include identification proof, income verification (such as salary slips or tax returns), bank statements, employment details, and collateral documents, if applicable.
Step 5: Contact the Bank
Visit the bank in person or explore their website to familiarize yourself with the loan application process. You may need to fill out an application form and provide additional information or documentation.
Step 6: Complete the Application
Provide all the required details and fill out the loan application form. This includes information about your income, employment history, assets, debts, and the purpose of the loan.
Step 7: Submit the Application
Once you have completed the application form, submit it to the bank along with all the necessary documents.
Step 8: Wait for Processing
The bank will review your application, assess your creditworthiness, and evaluate the proposed documents. This assessment process may take some time, so be patient. You may be contacted by the bank for additional information or clarification.
Step 9: Receive the Loan Offer
If your loan application is approved, the bank will present you with a loan offer. This offer outlines the loan amount, interest rate, repayment tenure, and any other terms and conditions associated with the loan.
Step 10: Review and Accept the Offer
Carefully review the loan offer, paying attention to the interest rate, repayment schedule, fees, and penalties. If you agree with the terms, sign the loan agreement to accept the offer.
Step 11: Receive the Funds
After accepting the loan offer and signing the agreement, the bank will disburse the loan amount into your account. The time taken to receive the funds may vary depending on the bank and loan type.
Step 12: Repay the Loan
Make regular payments according to the repayment schedule, which typically includes monthly installments covering both principal and interest.
Remember to carefully assess your financial situation and loan repayment capacity before taking a loan. Additionally, it is advisable to compare loan offers from various banks to secure the most favorable terms.
FAQ
Question 1: What is a bank loan?
Answer: A bank loan is a type of credit provided by banks to individuals or businesses, which needs to be repaid with interest.
Question 2: What are the types of bank loans?
Answer: The main types of bank loans are secured loans and unsecured loans.
Question 3: How to apply for a bank loan?
Answer: To apply for a bank loan, you need to assess your financial needs, compare loan options, check your credit score, gather required documents, and contact the bank.
Question 4: What are the interest rates for bank loans?
Answer: Bank loan interest rates vary based on the bank and loan type. Typically, secured loans have lower interest rates than unsecured loans.
Question 5: What documents are required for a bank loan?
Answer: Required documents for a bank loan may include identification proof, income proof, bank statements, employment details, and property documents (if applicable).
Question 6: How to repay a bank loan?
Answer: Bank loan repayment is typically done in monthly installments, including principal and interest. You can set up automatic payments or reminders to ensure timely repayment.
Question 7: What are the eligibility criteria for a bank loan?
Answer: Eligibility criteria for bank loans vary based on the bank and loan type. Typically, income, credit score, and employment stability are important factors.
Question 8: What is the tenure of a bank loan?
Answer: Bank loan tenure varies based on the bank and loan type.
Question 9: What are the charges for a bank loan?
Answer: Charges for bank loans vary based on the bank and loan type. Typically, processing fees, interest rates, and late payment fees apply.
Question 10: How to apply for a bank loan online?
Answer: To apply for a bank loan online, you need to visit the bank’s website, fill in the required information, and upload documents. The bank will then review your application and inform you.
Question 11: What are the risks associated with bank loans?
Answer: Risks associated with bank loans include late payment, interest rate hikes, and repayment difficulties. Therefore, it’s essential to carefully consider before taking a loan.
