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Loans
When you apply for loan, the banks want
to see how financially sound you are. Some of the main considerations
on which loan eligibility is decided include your repayment capacity,
age, income, source of income, credit score, educational qualification
and the relevant documents that you submit in support of your loan
application.
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home loan, home improvement loan, Car
Loan, loan for two wheeler, Educational Loan, wedding loan, business
loan, loan against security, personal loan and NRI loan. Interest can
be calculated on a daily, monthly, quarterly or annual basis. The
outstanding principal loan at the end of each of these terms is taken
into account for calculating the interest rate.
Loans can be classified as secured or
unsecured. Further, they can be based on fixed rate of interest or
floating rate of interest. In case of secured loans, you are required
to pledge your home or any other valuable security. In case of
unsecured loans, there is no such requirement. Unsecured loans are for
your short-term monetary requirements whereas secured loans can be
taken for longer periods. The amount of loan that is available under
unsecured category is limited, whereas, in case of secured loans, the
loan amount can reach very high proportions depending upon the value of
your home. You can take loans against securities or any other valuable
assets that the bank is willing to accept.
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The interest rate depends on loan
agreement. Interest rate can be Fixed or Floating/Variable depending
upon which option you availed at the time of taking a loan.
Simple interest is calculated only on
the principal amount, or on that portion of the principal amount which
remains unpaid.
Compound interest is very similar to
simple interest; however, with time, the difference becomes
considerably larger. This difference is because unpaid interest is
added to the balance due. Put another way, the borrower is charged
interest on previous interest. Assuming that no part of the principal
or subsequent interest has been paid, the debt is calculated by the
following formulas:
Loans with Fixed Rate of Interest -
Once agreed upon, the interest rate remains same throughout the period
of the loan.
Loans with Floating/Variable rate of
interest - Some loans are based on floating interest rates. In such
cases, the interest rate payable is linked to the market rate of
interest like the bank’s prime lending rate. Any change in the official
interest rate by the RBI may affect the rate applicable on your
loan.
Some banks have provision for
internally rating the borrower on different parameters. A rating or
score is assigned to each borrower, and accordingly, the terms and
conditions are decided by the bank. Higher credit score means higher
loan prospects.
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In lending agreements, collateral is a borrower's pledge of specific
property to a lender, to secure repayment of a loan. The collateral
serves as protection for a lender against a borrower's default - that
is, any borrower failing to pay the principal and interest under the
terms of a loan obligation. If a borrower does default on a loan (due
to insolvency or other event), that borrower forfeits (gives up) the
property pledged as collateral - and the lender then becomes the owner
of the collateral. In a typical mortgage loan transaction, for
instance, the real estate being acquired with the help of the loan
serves as collateral. Should the buyer fail to pay the loan under the
mortgage loan agreement, the ownership of the real estate is
transferred to the bank. The bank uses a legal process called
foreclosure to obtain real estate from a borrower who defaults on a
mortgage loan obligation.
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EMI stands for “Equated Monthly
Installments”. When you take a loan, the amount to be repaid every
month is calculated in such a way that all your outstanding dues are
cleared at the end of the loan period. This monthly payment that
includes interest as well as the principal amount is called an EMI.
Loan repayment is generally made with
the help of Post Dated Cheques or through Electronic Clearance System
(ECS) that is directly linked to your bank account. In case of
Electronic Clearance System, repayment is deducted automatically from
your bank account on an agreed date. Loans are available in the Indian
market for a period starting from 6 months to 25 years. The exact
duration depends upon which loan plan you have chosen, and it generally
varies from bank to bank.
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- Personal Loan
- Education Loan
- Car loan
- Agricultural loan
- Mall Business Loan
- Home Loan
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Personal loan is an unsecured loan
that does not require any security for borrowing money. Banks sanction
these loans on the basis of your monthly income. In the absence of
security, this is one of the quickest ways of borrowing money. Personal
Loans give you full freedom to use the loan amount any purpose (legal
and ethical) like home renovation, marriage expenses, medical expenses,
holidays, consumer durables, higher education etc.
You can apply for a Personal Loan by
submitting your details online. The representatives from banks will
approach you with different loan plans. If you wish, you can also visit
the bank personally. Always check with more than one bank regarding the
rate of interest and loan amount. Banks offer Personal Loans depending
upon your monthly income. The exact loan amount depends on your
eligibility and takes into account many things like your credit rating,
job security, residential location and the ability to repay the loan
amount in time.
Banks charge two types of fees from
the borrowers. - Processing fee payable at the time of processing your
loan application - Pre-payment fee payable in case you decide to
pre-close your loan account Both these fees vary from 2-3%. Bargaining
may help reduce the fees. The rate of interest on personal loans varies
from bank to bank and depends on prevailing market conditions. Usually,
it remains in the range of 12-24%.
Some banks claim that they sanction
personal loans in 72-hours. However, it is recommended that you keep
all the required documents ready so that no delay takes place due to
paperwork. You can apply jointly with your spouse. This allows you to
increase your loan eligibility as the income of your spouse is also
added to your income for the purpose of calculating the loan
amount.
Banks normally sanction a minimum
personal loan amount of Rs. 50,000. Depending upon your eligibility,
income and repayment capability, the maximum loan amount can be
extended up to Rs. 15,00,000. You can also combine the income of your
spouse to increase your loan eligibility.
You can avail personal loans for a
period of 12 to 60 months. Lenders accept repayments in two ways –
Post-dated cheques or Standing Instructions to debit your personal
account. It is better to have a personal account with the bank you are
taking loan from. You may get the benefits of preferred interest rates,
priority processing and simpler documentation if you are an existing
customer with the bank.
Some banks offer relationship
discount. If you are already with the bank as a borrower or any other
customer, you become eligible for discounts in the form of lower
interest rates, exemption in processing fee or other benefits or
facilities as decided by the bank from time to time.
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