TYPES OF BANK LOANS IN INDIA I लोन के फायदे और गेरफायदे I PART – 2 BY CA SAMIR CHAUDHARY | Jabar Post Indonesia/a> – This time JabarPost.Net will discuss about Loan.
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TYPES OF BANK LOANS IN INDIA I लोन के फायदे और गेरफायदे I PART – 2 BY CA SAMIR CHAUDHARY | Jabar Post Indonesia
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e. the borrower) incurs a debt, and is usually liable to pay interest on that debt until it is repaid, and also to repay the principal amount borrowed.
The document evidencing the debt, e.g. a promissory note, will normally specify, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.
The interest provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.
Acting as a provider of loans is one of the main activities of financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.
Types of Bank Loans in India | By CA Samir Chaudhary [Hindi]
In finance, a loan is the lending of money from one individual, organization or entity to another individual, organization or entity.
From starting a business to purchasing a luxury car, buying a home to going on a vacation – these days you will find customized bank loans for all your needs. This creates a huge opportunity not only for banks but also for businesses selling consumer products. Banks label loans based on the end-use of proceeds. Terms and conditions and other features of loans differ mainly based on this end-use, i.e. the purpose of the loan.
Bank loans based on end-use
1. Personal loan, as the name suggests, loans received as personal could be utilized by the recipient for any requirement. For example – marriage, home improvement, travel or any miscellaneous expenses. These days’ credit card companies give you an option to apply for a loan for up to the extent of your credit limit. This is processed online where you can choose your EMI and duration of repayments and a cheque will be delivered to you within 3-4 days, no questions asked. All you need is a credit card. The interest rate is highest for this category of loans.
2. Home Loans typically has the lowest rate of interest and is usually taken for a very long duration.
3. Car Loans, these days’ automobile companies have ventured into finance by setting up separate subsidiary companies solely for this purpose. They can offer the best interest rates often with zero interest rate schemes. They usually undercut any bank’s finance terms since they can eat into their profit margin on the underlying vehicle.
4. Education loan, just like personal loans, the rate of interest is really high for this category. However, the big advantage here is that most banks will give you a grace period before your EMI’s or repayment terms start. The grace period takes into account the duration for which your education lasts i.e. repayment starts once you complete your education and get into the job market.
5. Business loan, again, the interest rate is really high for this category mostly because of the risk involved.
Major Terms in Bank Loans
6.Gold Loan: Gold loan interest rates are lower as compared to personal loans and this is probably the edge. Processing fees are not charged on gold loans. However, they are charged for the valuation of gold. Most of the banks and companies take the utmost care not to damage the ornaments during evaluation or storage.
7.Property Loan: Loan against property is pretty similar to personal loan; the only difference being you put a property owned by you as collateral against the loan. This property might be confiscated in case you default on the loan.
Fixed-Rate vs. Floating Rate Loans
Fixed-Rate: The rate of interest is fixed either for the entire tenure of the loan or for a certain part of the tenure of the loan. In the case of a pure fixed-rate loan, the EMI remains fixed for the entire duration irrespective of whether the bank increases or reduces its interest rates and irrespective of RBI mandated changes in interest rates. If interest rates move up over the years, a fixed rate EMI becomes very attractive as you pay far lower than the market rate. Consequently, a reduction in interest rates will have the opposite effect.
Floating Rate: As the name suggests, the floating rate of interest varies with market conditions. EMI of a floating rate loan changes with RBI mandated changes in interest rates (and with changes in the bank’s internal interest rate) from time to time. If market rates increase, your repayment increases. When rates fall, your dues also fall.
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