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Basics of loans and types of loans


type of loans

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Basics of loans

We have being listening a lot now a days about various mobiles, television, other household products, flats, lands, etc are available on loans or EMI schemes, but what this loan exactly means. Do you know?? In this article we shall discuss about various types of loans available in the financial markets.

What is a Loan?

A loan is money, property or other material goods given to another party in exchange for future repayment of the loan value or principal amount, along with interest or finance charges. A loan may be for a specific, one time amount or can be available as an open-ended line of credit up to a specified limit or ceiling amount.

How Bank Loans Work:

For loan you can apply in unorganized sector i.e. individual lenders who have excess cashflow to be lend or organized sector i.e. through banks. Organized sectors are more safe to be applied as loan as they governed by RBI and various other financial acts. Rate of Interest charged on the loan are more or less same in all banks.

A loan which is backed up with collateral security is known as secured loan. Unsecured Loans doesn’t require any collateral for processing of it loans. With poor credit , might be difficult to get unsecured loans also with higher annual percentage rate (APR).

Lets Discuss Different Types of Loans in detail:

Personal Loan:

A loan which doesn’t requires any collateral or security and offered with minimum documentation is known as Personal Loan. Personal loans is one of the product of unsecured loans and helps to meets ones financial needs.

Personal Loan can used to for marriages or to indulge in an exotic vacation expenses of a medical emergency, home renovation, pay off credit cards and debt consolidation, money for moving expenses, pay medical bills, Buy a car, boat or RV, make a large purchase and others.

Process/Checklist/Draft:

Getting loan is easy if you have client documents are in order and client have good credit track records. The final disbursal amount depends on client’s loan eligibility, repayment capacity and other factors. To enjoy a higher loan amount, you should have a robust CIBIL score. Also, salaried Professional within the age of 25 to 58 years can apply for the loan.

Tenure of the loan is 12 to 60 months and interest rates vary from 10.99% to 24% p.a. based on various reasons.

Personal Loan Application Process:-

  1. Fill out the online personal loan application form and provide your personal, employment and financial details.
  2. Select the loan amount and tenor as per your needs to get instant online loan approval.
  3. Submit the required documents to a Bank representative, who will contact you soon.
  4. Get the loan amount into your bank account within 24 hours.

Basic Documents like:

  • KYC documents like Aadhar card, driving license and voters Id Card
  • Employee ID card
  • Last 2 months salary slips
  • Previous 3 months salaried bank account statement.

 

MORTGAGE LOAN:

 

A loan is known as mortgage Loan when property or real estate used as collateral. The Borrower enters into agreement with the banks (as lender usually) wherein the borrower receives cash upfront then makes payments over a set time span until he pays back the lender in full. There can be mortgage borrowers for individual needs or business mortgaging of commercial property. Main characteristics of mortgage loans are size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. If the borrower becomes bankrupt or insolvent then lender’s rights over the property take priority over the other creditors. It means that mortgage lenders will be repaid full debts first and then debts owed to others them from a sale of property.

 

The application process for a mortgage backed loan is usually hassle free when compared to a commercial loan. The borrower will have to provide the duly filled in loan application, proof of identity, proof of income and address, documents evidencing the ownership of the property which is to be mortgaged. In certain cases, banks may undertake a valuation of the property to be mortgaged.

In case of commercial entities, it is possible to create a mortgage over a land which has been obtained on lease if the terms of the lease deed permit creation of security over such property. Usually, a consent letter from the lessor (the person or organization which has provided the lease and is the actual owner of the property) would be required, permitting the creation of mortgage over such property. Along with the application form and proofs of identity, address and income, you will also have to submit the ownership documents along with a property valuation report. Remember, to state the correct information as the lender will verify all the information furnished.

Along with the application form and proofs of identity, address and income, you will also have to submit the ownership documents along with a property valuation report. Remember, to state the correct information as the lender will verify all the information furnished.

 

BUSINESS LOAN:

Business Loans are intended specifically for the purpose of business. Bank loans, mezzanine financing, asset-based financing, invoice financing, micro loans, business cash advances and cash flow loans are different types of business loans. A business loan is borrowed capital that companies apply toward expenses that they are unable to pay for themselves. Business loans allow companies to have a chance at success. When applying for a business loan, lenders evaluate debt of the company, company’s history and whether the business seems risky.  These loans are high in demand, but risky business like start-ups don’t receive loans.

Business loan is required for purchase of new machinery, expanding existing business, or boost production. Some business owners use business loans to pay for salaries and wages until their new company gets off the ground, while other companies put borrowed funds toward office supplies, inventory or business projects.

The quantum of the loan depends on the profile of the borrower. Though the loan application is processed, credit history is crucial. Though the status of the revenues, type of business and the assets of the company, a borrower can leverage the application.

Availing start up business loans is also preferred because there’s minimal paperwork. Most financial institutions only require KYC documents to process the loan application. This makes the process hassle-free.

A lot of public sector banks have special scheme for women entrepreneur. There are also special schemes from the union and state governments to provide finance to women to support their business initiatives.

Process/Checklist/Drafts:

Seven Steps to take when applying for a business loan from the bank:

  • Have a proper business plan: In order to secure a loan, many banks need you to have a strong financial plan which brings out what your business entails. It forms an introduction about who you are and what your business is all about.
  • State how you want to spend your finances: Stating reasons for applicating loan makes it easy for the bank to determine whether the amount applied for will meet all needs of applicant.
  • State the amount of money applicant needs: when applying for a loan it is good to do a thorough research for not to underestimate or overestimate the amount of money required. To avoid all these doubts, have a good budget with proper financial projections.
  • Be keen on credit score: Nowadays, all banks have to verify whether every applicant is eligible to be given a loan. When applying for financial help, it is advisable to check your personal credit reports and scores.
  • Clean up credit report: Sometimes there could be errors in credit report and if not careful, it might negatively affect credit score. This is why it is always advisable to monitor business credit and personal credit files regularly.
  • Assess all your lending options: After checking credit report and ensuring that it is okay, it is time to research and come up with a list of banks that are viable to extend the type of loan applicant are in need of. 
  • Keep proper financial records: Getting a business loan from a bank becomes easier when you have proper financial statements. Banks will always want to check your balance sheet, cash flow statements and income statements so as to ascertain whether you have the ability to repay the loan or not. This means that if you have not been keeping these records, it is time to start since they could be of help in future when applying for a loan.

 

Following are the criteria for eligibility of loan:

  • Loan applicant must be between 22 and 55 years old.
  • Business must have vintage of at least 3 years*
  • Business should have its Income tax returns filed at least the past 1 year.
  • Business should have its previous year’s turnover duly audited by a CA.*

Documents Required for Business Loan:

  • Passport size photograph
  • KYC documents
  • Business Proof: Certificate of business existence
  • Relevant financial documents
  • Bank account statement of last month.

 

CAR LOAN:

A Car loan is a sum of money a consumer borrows in order to purchase a Car. Car loans follow most of the same rules and procedures that apply to other loans. All car loans are for specific lengths of time, generally anywhere between 24 and 60 months, although some car loans can be for longer periods. Car loans generally include a variety of fees and taxes, which are added to the total loan amount. 

Target Audience:

The eligibility criteria for car loans are applicable for both salaried and self-employed individuals. 

The following people are eligible to apply for a New Car Loan (Generally eligibility):-

 

  • Salaried Individuals:
    • This includes employees of private limited companies, employees from public sector undertakings, including central, state and local bodies
    • Individuals who are a minimum of 21 years of age at the time of applying for the loan, and no older than 60 at the end of the loan tenure
    • Individuals who have had a job for at least 2 years, with a minimum of 1 year with the current employer
    • Those who earn a minimum of Rs. 3,00,000 per year, including the income of the spouse/co-applicant

 

  • Self Employed Individuals and Professionals (Sole Proprietorship):
    • This includes self-employed sole proprietors in the business of manufacturing, trading or services
    • Individuals who are a minimum of 21 years of age at the time of applying for the loan, and no older than 65 at the end of the loan tenure
    • Those who have been in business for a minimum of 2 years
    • Should earn at least Rs. Rs. 3,00,000 per annum
  • Self Employed Individuals and Professionals (Partnership Firms):
    • This includes self-employed partners in the business of manufacturing, trading or services
    • Those who have a minimum turnover of Rs. Rs. 3,00,000 per annum
  • Self Employed Individuals and Professionals (Private Limited Companies)
    • This includes individuals who own a private company in the business of manufacturing, trading or services
    • Should earn at least Rs. Rs. 3,00,000 per annum
  • Self Employed Individuals (Public Limited Companies):
    • This includes directors in public limited companies that are in the business of manufacturing, trading or services
    • Should earn at least Rs. Rs. 3,00,000 per annum

 

Process/Checklist/Drafts:

The documents required for a car will be different depending on your source of income. The list below offers an overview of the required documents. But do check with your bank for specific requirements. 


Proof of identity documents: Aadhar card, passport, pan card or voters ID card etc. 

Proof of address documents: Aadhar card, passport, telephone or electricity bill, Shop & Establishment Act certificate (for self-employed individuals), among others. 

Proof of income documents:

  • Bank statement of the last six months
  • Salary slip and form 16 (for salaried persons)
  • Income tax returns (for self-employed persons)

 

Housing /Home Loan

  • A home loan is an amount of money that an individual borrows from a bank or money lending company at a certain rate of interest to be paid with the EMI every month. The property is taken as a security by the money lending company for the Home Loan.
    • The property can either be investment or personal occupancy in nature.
    • When the borrower cannot pay the dues, the lender will possess all the legal rights to recover the outstanding loan amount by sale of the subjective property.

Eligibility Criteria:

  • Any salaried, self-employed or business person with Indian nationality can apply for a home loan.
  • To be eligible for home loan You must be aged 21 years or above.
  • You should have a regular source of income for timely repayment of the loan. Your net monthly income should be equal or more than Rs. 25,000. To be eligible for home loan your fixed obligations like current loan EMI, do not exceed 45%-50% of your monthly income.
  • Your professional stability and savings history will help in quick loan approval.
  • Ensure that you do not have bad credit history for at least the three months prior to applying for a home loan.
  • If you are a salaried professionals, about 40% of your monthly gross income can be considered as your monthly EMI against the loan.
  • For self-employed individuals, profit earned by you majorly determines the home loan value you are eligible for.

Home Loan Eligibility Criteria

Salaried

Self-employed Professionals

Age Criteria

21 Years – 60 Years

24 Years – 65 Years

Employment

Min. 2 Years of experience

Min. 5 Years of experience

Co-Applicant(s)

Not Mandatory – Only Family Members as co-applicants

Not Mandatory – Only Family Members as co-applicants

Credit Score

750 or above

750 or above

Max. Loan on Property Value

Upto 90%

Upto 90%

Max. EMI – Per Income %

Upto 65%

Upto 65%

 

When you apply for a home loan, there are some rules and regulations that should be followed to make the process of borrowing a little easier. These are:

1. The best deals on home loans are generally given only to individuals with a good credit score.
2. Select the best loan option for you. Compare and study which home loan interest rate suits you best. You may want to maintain a stable budget every month thus opting for a fixed interest rate and tenor.
3. Use a home loan eligibility calculator to check out how much loan amount you can borrow from the company.
4. Keep your personal and financial documents required for home loan ready as you will need them while applying for the loan.
5. Larger the down payment, the better for you. You should start saving for the initial down payment, as that can be anywhere between 2.5% to 25% of the total cost of the home you are planning to buy.
6. Maintain a good relationship with your lending company. This will help you with your loan sanctions. One way to do this is to be prompt in responding to any queries from your lender.

Documents Required for applying housing Loan:

Documents

Salaried

Self Employed

Self Employed Non Professional

Application form with photograph duly signed

     

Identity, residence and age proof

     

Last 6 months bank statements

     

Last 3 months Salary-slips

 

 

 

Processing fee cheque

     

Form 16 / Income Tax Returns

     

Proof of business existence

 

   

Business profile

 

 

 

Education qualification certificate and proof of business existence

 

 

 

Last 3 years Income Tax Returns with computation of Income

 

   

Last 3 years CA Certified / Audited Balance Sheet and Profit & Loss Account

 

   

 

Post closure of loan, documents required for handover of original Property documents

  • Power of Attorney format for collection of original Property documents
  • In case of death of Loan Account holder:
    • Request letterfrom the Legal Heir/ Claimant/ Nominee(s) for handover of Property documents
    • Letter of relinquishmentfor relinquishing right (Nominee/ Legal heir) in favour of Legal Heirs/ Nominees/ surviving owners for handover of Property documents

Checklist:-

Banks and NBFCs Use following factors while calculating the home loan amount the borrower is eligible for.

  • Qualifying Minimum Age to Apply
  • Net Take Home Salary
  • Regular Source of Income
  • CIBIL Score of 750 or above
  • Residence Status or Tenure
  • Property Type and Purpose
  • Valid Range of Loan-To-Value (60%-90%)
  • Remaining years of service
  • Tenure of home loan
  • EMI – if you are paying EMIs for other loans taken previously then this will also affect you home loan eligibility.

To improve an individual’s financial situation, credit or loan is the best form of financial tool. When   something is beyond his financial affordability, he falls into the traps of loans. Thought it is not always true that human greed but there are some needs to of the individuals like housing loan, education loan, etc.

To apply for loan simply call us on +918928263545 or submit your requirement our nearby expert will get back to you

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