Break your myths about loans.

Published: 21 November 2022

Updated: 19 September 2023

Loan in terms of finance is the practice of lending money from a bank, financial institutions, or from other entities. A borrower incurs a debt and is liable to pay the borrowed amount with interest in the particular agreed time period. There are many myths about loans and documentation makes people confused about taking loans. This compels people to take money from unsecured money lenders who charge high-interest rates from people and they end up making their life miserable. Change is the only constant thing in this growing world. It is the high time we need to update our thought process on loans and should opt for a registered financial institution, bank, or NBFC for loans. The topic of loans still needs awareness among people who are low on funds but not on life.

One must understand that a loan is not a burden but rather a very planned decision, which can pave the path to achieving your aim. The government of India has separate acts and regulations for loans. Like there is a sale on your favorite thing and you purchase it when the price is lowest, similar is the case of loans. Many banks offer loans at low-interest rates, here the point again is we need to be well aware of the terms and conditions.

There are only three components of loans namely, principal, borrowed amount, and interest rate and these are the focus points that must be considered before applying for any loan.

Here is a sneak peek at the types of loans.

Based On Security Provided

Based on the purpose

Based on the pledged assets

Secured loan- Loan which needs collateral against which the loan will be issued by bank and NBFCs.

Unsecured Loan- A loan that does not require any collateral, the bank analyses your credit score and other documents. The interest rates on such loans are usually higher. This is also called signature loans.

Education loan: If you wish to study and you are low on funds. Take an education loan with an easy low-interest rate from a bank or NBFC.

Personal: If you have some personal expenses and you could not able to manage them with the current money in your hand. It is always desirable to take a loan and pay the amount with low interest.

Vehicle loan: This type of loan finance two-wheeler and four-wheelers. As per the road price of the wheeler, the loan is granted by the chosen organization.

Tip: Banks or NBFCs do not provide 100% finance so you must be ready with the downpayment.

Home loans: Owning a house is a dream of every common man. Banks and NBFCs provide loans for reconstructing, renovating, or buying a house. The lender will hold the property and transfer full ownership rights to you.

Business loans: They are sanctioned by banks and NBFCs for business owners who are willing to expand or start their new business.

Gold Loans: Many financial organizations and banks offer money against the gold whether it be jewelry, gold bars, and coins offered by the borrower to them. They check the exact value of gold and pay an amount to the borrower. It is recommended that a borrower must pay the monthly installments on time, or else the organization is liable to confiscate the gold.

Loan against pledged assets: similar to gold pledged loans are loans against pledged assets. The borrower must pledge the FDs, the mutual funds, and insurance to the bank in order to receive loan amounts from banks and NBFCS. The borrower must installments on time in order to recover the assets.

Another question is what do you need to file a loan application?

If you are a salaried person

● Duly filled Application form with the latest photograph

● Identification proof and address proof

● Bank account statement for the last six months

● Salary Slip for the previous month

● Form 16

In case you are a business owner, listed below are the documents required to file a loan.

● Duly filled Application form with the latest photograph

● Identification proof and address proof

● Bank account statement for the last six months

● Proof of business