Money borrowed from one or more individual or from a financial institution for our personal needs or any other emergencies are called as loans. These are given for certain period with a charge of interest rate on the principle amount borrowed.
Loans can be further divided into :
Secured loan can be defined as a loan given against some asset as a security, the loan amount borrowed depends on the asset value which is given as security. Secured loan can be of various types like ,
Unsecured loan are the ones which are given on the basic of individual or entities credit score , the amount of loan which can be borrowed depends on the person / companies credit rating. some of the unsecured loans are
Principle : This is the orginal amount of money borrowed by the borrower.
Loan term : The amount of time, the borrower take to repay the loan.
Rate of interest : % of charge given on the principle amount, this is calculated on yearly basis, the interest rate can be fixed or floating, depending on the loan conditions.
EMI/ loan repayment : Equated monthly installment, an amount which you have to repay to the loaner on monthly basis. This amount is consist of principle + interest amount.
Your loan eligibility is calculated on your income and debt ratio and your credit score . Most of the banks see if you have a steady flow of income from a reputed company or a business. Banks also verify your debt history, weather your are good at paying loans.
Your loan interest in calculated on many factors
Your loan amount is calculated on your repaying capability. Banks make sure that the total EMI should not be more than 50% of your take home salary( for employed customer ) or profit and loss statement ( for business owners ).
By maintaining all these, you will be able to apply loans from a bank or financial institutions, which prevents you borrowing money from loan sharks , who charges exorbitant interest rates.