Loans can be utilised for various things in today’s world. It can be used for funding a start-up to buying appliances for your newly purchased house. Let us talk about the different types of loans available in the market and their specific characteristics that make these loans useful to the customers.
If you have never received a loan to purchase something, you are certainly in the minority! Loans can be a great thing, but they can also get you into trouble. One of the keys to being financially successful is understanding when loans are a good solution for your situation. Loans are never a good idea if you can't afford to pay them back in the required time frame. Let's explore what a loan is and find out some of the common ways to borrow money.
A loan is when you receive money from a friend, bank or financial institution in exchange for future repayment of the principal, plus interest. The principal is the amount you borrowed, and the interest is the amount charged for receiving the loan. Since lenders are taking a risk that you may not repay the loan, they have to offset that risk by charging a fee - known as interest. Loans typically are secured or unsecured. A secured loan involves pledging an asset (such as a car, boat or house) as collateral for the loan. If the borrower defaults, or doesn't pay back the loan, the lender takes possession of the asset. An unsecured loan option is preferred, but not as common. If the borrower doesn't pay back the unsecured loan, the lender doesn't have the right to take anything in return.
Most banks offer personal loans to their customers and the money can be used for any expense like paying a bill or purchasing a new television. Generally, these loans are unsecured loans. The lender or the bank needs certain documents like proof of assets, proof on income, etc. before approving the personal loan amount. The borrower must have enough assets or income to repay the loan. In case of personal loans, the application is 1 or 2 pages in length. The borrower gets to know about the denial or approval of the loan within a couple of days. You must remember that the rate of interest associated with these loans can be on the higher side. The tenure of these loans is not that long. So, if you borrow a big amount, it can be difficult for you to repay without planning your finances properly.
Personal loans can prove to be of great help when you wish to take a small amount loan and repay it as soon as possible.
Businesses need ample amount of investment to fund for start-up expenditures or pay for business extensions. For such purposes, companies take out business loans for their financial assistance. It is a debt which a company is obligated to pay back within a specific tenure according to the terms and conditions of the granted loan. Start-up Business loans can be taken for a variety of essential requirements like starting up a new firm, business expansions, dealer and vendor financing etc.
The major benefit of business loans in India is that it does not require any collateral or security and most of the banks sanction business loans with minimal pre-payment charges. Another benefit is that if there is a failure of repaying the loan, then the business owner will not solely face the burden of penalties but the whole company will be liquidated in order to clear the business loan.
When you wish to purchase a house, applying for a home loan can help you to a great extent. It provides you the financial support and helps you buy the house for yourself and your loved ones. These loan generally come with longer tenures (20 years to 30 years). The rates offered by some of the top banks in India with their home loans start at 8.30%. Your credit score is checked before the loan request is approved by the lender. If you have a good credit score, there is a fair chance that you will be able to enjoy lower rates of interest with your home loan
Home loans are primarily taken for buying new homes. However, these loan can also be used for home renovations, home extensions, purchasing land property, under-construction houses, etc.
Buying a car can definitely instil a great sense of joy and happiness in you. A car will remain as your asset and it is going to be one of the biggest investments that you make. A car loan helps you to pave the path between your dream of owning a car and actually buying your car. Since credit reports are crucial for judging your eligibility towards any loan, it is good to have a high credit score when you apply for a car loan. The loan application will get approved easily and you might get a lower rate of interest associated with the loan.
Car loans are secured loans. If you fail to pay your instalments, the lender will take back your car and recover the outstanding debt.
Loan against Property is one of the variants of the Personal loans and are secured loans offered by banks and financial institutions using one or more properties owned by you as collateral. Loan against Property is also known as mortgage loan. One can avail these mortgage loans for commercial property or residential property collateral. The property is mortgaged and a fixed percentage of the prevailing market value of the property (normally between 60-70% of the value of the property) is given to the burrower as a loan. Though such a property is mortgaged with the lender, you are still allowed to continue using it for residential or commercial purposes.
These loans are a better option as compared to a personal loan due to the comparatively lower rate of interest charged by the lender. Additionally, unlike gold loans, where the gold ornaments are deposited with the bank and you do not get them back till the loan is paid in full, you can continue using the property used as collateral while you are repaying the loan.
Loans against property or Mortgage Loan area highly preferred form of loans in India, and have much more easily available than ever with the surge in banks and NBFCs providing these loans. Along with being cost-effective, these loans are reasonably convenient to avail and repay due to the relatively low Loans against Property interest rate.
You can avail Mortgage Loan for following Purposes:-
