- Personal Finance
Getting to know about loans
Whenever we think of getting something beyond our financial stability the first though we have is getting a loan. Loan can be said to be an amount borrowed from the third party to fulfil short or long term credit requirements. Before applying for a loan we should first understand the types of loan's prevalent in the market and the eligibility requirements for the same. We should also take some precautionary measures so as to see that we get the loan from the right financial institution and doesn't have to face any hardships later on.
Let us first discuss the types off loans prevalent in the market.
Home loans are provided by financial institution in order to make the assesse eligible to purchase a residential apartment or residential land. If you wish to buy a new residential building or wish to construct the same by purchasing the land then you may apply for the home loan with the bank or financial institution. Generally bank provides loan upto 70 to 80 percent of the market value of the property. The balance amount is to be paid from your own sources. The banks will insist you in every step while sanctioning the loan amount and will take the possession of original documents relating to the property as a security for loan sanctioned. Generally banks comes out with attractive offers for customers in case of home loan and the legal requirements in relation to sanctioning of home loan is also very less because loan property is encumbered by bank as security. If you are in high income class of people then you may also get additional tax benefits from the government if you purchase a house property through getting a loan sanctioned. The right title to the residential property is transferred in the name of the assessee by the bank only when the entire loan amount is paid till then assessee only holds the possession of the property not its title.
In order to enable students to take up higher educational qualification requiring huge amount to be paid as fee, banks offer educational loan to them for undertaking recognised educational qualification. Loan amount is sanctioned on the basis of educational qualification to be undertaken by the student and it's merit track record. Recognized educational qualification means courses which are recognized by the government and fall in the category of full time courses. That means loan amount is not sanctioned for part time courses or courses which can be undertaken from home through online mentoring or otherwise. The loan amount is sanctioned and disbursed as and when required but the instalment payment starts only when the student have completed his educational course and have got into the job. Interest rate is generally lower than any other type of loan and an incentive is also granted by the government as per his policies.
If you wish to buy a two wheeler vehicle, car or a commercial vehicle you may apply for vehicle loan. Generally banks grant loan upto ninety percent of the vehicle amount excluding the value of additional accessories supplied with the vehicle. Just like home loan the right title to the vehicle is transfered in the name of assessee after paying all the loan installments, till then the assessee have only the possession of the vehicle while the title belongs to the bank who has sanctioned the loan. The registration certificate clearly discloses the fact that the vehicle has been taken through loan. When it comes to vehicle loan different bank offers different rate of interest so before applying for the loan first get ample knowledge about the prevailing interest rates. In order to be eligible for vehicle loan there are also some statutory requirements to be fulfilled such as getting your vehicle insured or payment of taxes on time.
Personal loans are granted on the basis of the income of individual for any purpose the individual requires. If the loan amount is not to large the bank may grant loan without any security while if the loan amount exceeds the prescribed limit the bank may require the individual to furnish a security which may in the form of fixed deposit with bank or any property documents. Often in case of personal loans the bank requires the individual to furnish a third party guarantee that you will not default in the payment of instalments, and the third party commonly known as guarantor should have a account in the same financial institution. Interest rates are high as compared to other types of loan so market research for similar loan types becomes necessary before applying for the loan.
Cash credit facility is generally provided to business organisations to overcome small term working capital requirement. Cash credits are granted by the banks upto ninety percent of the value of current stock of goods with the business organisation and it's total outstanding debtors. It's sanctioned for the fixed term and doesn't requires and fixed periodic payments. The assessee can pay as and when required and interest is charged accordingly. The cash credit limit revises every month on the basis of stock and debtor statement submitted by the business organisation. It's beneficial as compared to other loans as interest is charged only on the amount used and not on the total amount sanctioned and provided assessee with good financial liquidity.
Points to be considered before applying for loan
1. Calculate your budgeted surplus taking into account your monthly earning and expense, see to it that your instalment amount is within your budgeted surplus.
2. Conduct market research of the interest rates offered by different banks and their terms and conditions.
3. Prepayment option in the loan amount sanctioned and the charges levied on prepayment of loan amount.
4. Duration for which the loan is sanctioned as loans taken for longer durations requires huge amount to be paid as interest.
5. Cross check the documents to be submitted by you and in case original documents have to be submitted the security measures for such documents undertaken by banks.
6. See to it that the agent through which you are dealing is authorized by bank in this behalf.
7. Improve your credit score by paying all the debts which are due.