Loan an overview

December 23, 2021 at 1:51 pm by Editorial

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Anupama Nair

www.mediaeyenews.com

What is loan? “Loan is a type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principal amount. In many cases, the lender also adds interest or finance charges to the principal value which the borrower must repay in addition to the principal balance”. Loans may be for a specific, one-time amount, or they may be available as an open-ended line of credit up to a specified limit. There are many different types of loan like secured, unsecured, commercial, and personal loans.

A loan is a form of debt incurred by an individual, a family or an enterprise. The lender, is usually a corporation, financial institution, or government lends a sum of money to the borrower. In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions. In some cases, the lender may require collateral to secure the loan and ensure repayment. Loans may loans may be taken from bonds and certificates of fixed deposit and LIC policy. It is also possible to take a loan from a 401(k) account in the US or Provident fund In India .

Here's how the loan process works. When someone needs money, they apply for a loan from a bank, corporation, government, or other entity. The borrower may be required to provide specific details such as the reason for the loan, their financial history, Aadhaar Card and PAN Card, and any other information the lender needs. The lender reviews the information including a person's debt-to-income (DTI) ratio to see if the loan can be also paid back. Based on the applicant's creditworthiness after checking CIBIL, the lender either denies or approves the application. The lender must provide a reason why the loan application was denied. If the application is approved, both parties sign a contract that outlines the details of the agreement. The lender advances the proceeds of the loan, after which the borrower must repay the amount including any additional charges such as interest.

The terms of a loan are agreed to by each party before any money or property changes hands or is disbursed. If the lender requires collateral, the lender outlines this in the loan documents. Most loans also have provisions regarding the maximum amount of interest, as well as other contracts such as the length of time before repayment is required.

Loans are advanced for a number of reasons including major purchases, investing, renovations, debt consolidation, and business ventures. Loans also help existing companies expand their operations. Loans allow for growth in the overall money supply in an economy and open up competition by lending to new businesses. The interest and fees from loans are a primary source of revenue for many banks, as well as some retailers through the use of credit facilities and credit cards.

Interest rates have a substantial effect on loans and the ultimate cost to the borrower. Loans with higher interest rates have higher EMI or have a longer term than loans with lower interest rates. For example, if a person borrows Rs 5,000 on a five-year installment or term loan with a 4.5% interest rate, they face a monthly payment of Rs. 93.22 for the following five years. In contrast, if the interest rate is 9%, the payments will increase to Rs. 103.79.

Similarly, if a person owes Rs. 10,000 on a credit card with a 6% interest rate and they have to pay Rs. 200 each month, and it will take them 58 months, or nearly five years, to pay off the balance. With a 20% interest rate, the same balance, and the same Rs. 200 monthly payments, it will take 108 months, or nine years, to pay off the card.