What is a Loan ?
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
- Unsecured loan
What is a secured loan ?
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 ,
- Mortgage loan
- Gold loan
- Car loan or motor loan
- Loan against property
- Loan against stock
- Loan against business
- Loan against shares and mutual funds
- Loan against bank deposits
What is a unsecured loan ?
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
- Personal loan
- Educational loan
- Wedding loan
- Holiday Loan
- Home renovation loan
- Emergency loan
- Over draft loan
what are the important terms you should know before taking a loan?
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.
How is my loan eligibility is calculated ?
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.
How is my interest rate calculated ?
Your loan interest in calculated on many factors
- Credit score
- Employment
- Loan amount
- Loan tenure
- Security
- Choice of your bank
How is my loan amount calculated ?
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 ).
What are the key documents required to apply for a loan ?
- Income proof ( Salary payment advice or income tax receipts )
- Address proof
- Identity proof ( Example , social security number )
What are the tips to get a easy loan ?
- Maintain a bank account with a proof of income.
- Have a good credit score by paying all your loans on proper time.
- Maintain all asset documents update.
- File your income tax returns.
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.