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Banking | Loans & Credits

  • Banking is the business of protecting money for others.
  • Banks lend this money, generating interest that creates profits for the bank and its customers.
  • A bank is a financial institution licensed to accept deposits and make loans.
  • Because banks play an important role in financial stability and the economy of a country,
    most jurisdictions exercise a high degree of regulation over banks.

What is the difference between a Loan and a Credit?

Though both are Banking products, Loans and credits are different finance mechanisms.
Both provide capital to the borrower but differ in terms of definition and objectives.
Main difference between both is Loan provides all the money requested by the borrower in one go,
while Credit provides with an amount of money, which can be used as required, using the entire amount borrowed, part of it or none at all.

Loan, explained!

A loan is a financial product that allows a user to get a fixed amount of money at the beginning of the transaction,
with the condition that this amount in addition to the Interest calculated, be returned within a specified time period.
The loan is repaid in regular instalments.
The main characteristics of a loan include:

  • The transaction has an expiration date.
  • Once all the capital has been repaid through the payment of the instalments (monthly, quarterly, half-yearly…),
    the operation is concluded without the possibility of accessing more money, unless a new loan is arranged.
  • Interest is charged on the total amount of money borrowed.
  • Loans are for a longer period of time, usually years.
  • The amount of a loan is determined by the borrower's need and creditworthiness.

Types of loans:

There are 2 types of loans, which are further subdivided into many types:

  1. Secured Loans
  2. Unsecured Loans

Secured Loans:

Secured loans are backed by some form of collateral, which is usually the same asset that is used to secure the loan.
A car loan, for example, is secured by the vehicle.
If the borrower fails to meet their financial obligations and defaults on the loan, the lender has the right to repossess
the vehicle, sell it, and apply the proceeds to the remaining loan balance.
Secured Loans are further divided into 6 parts:

  • Home Loan or Mortgage loan
  • Loan against Property(LAP)
  • Loan against Insurance Policies
  • Gold Loan
  • Loan against Mutual Funds and Shares
  • Loan against Fixed Deposit(FD)

Unsecured Loans:

Unsecured loans do not have any form of collateral backing them up.
Most of the time, approval for these loans is based solely on a borrower's credit history, and they are typically
advanced for lower amounts and at higher interest rates than secured loans.
Unsecured Loans are further divided into 5 parts:

  • Personal Loan
  • Short-term Business Loan
  • Education Loan
  • Flexi Loan
  • Vehicle Loan

Home Loan | Mortgage Loan

A Home Loan or Mortgage loan is a secured loan that can be received to purchase a property by offering it as collateral.
Home loan can further be divided into:

  • Land Purchase Loan
  • Home Construction Loan
  • Home Loan balance transfer
  • Top up loan

What are the Key Features of Home loan(Mortgage loan)?

  • Home Loans for purchase of a flat, row house, bungalow from private developers in approved projects
  • Home Loans for purchase of properties from Development Authorities such as DDA, MHADA etc
  • Loans for purchase of properties in an existing Co-operative Housing Society or Apartment Owners' Association
    or Development Authorities settlements or privately built-up homes
  • Loans for construction on a freehold / lease hold plot or on a plot allotted by a Development Authority
  • Expert legal and technical counselling to help you make the right home buying decision
  • ntegrated branch network for availing and servicing the Home Loans anywhere in India

What is Benefits of Home loan(Mortgage loan)?

  • End to End Digital Process
  • Customized Repayment Options
  • Easy & Hassle free documentation
  • 24X7 Assistance
  • Manage home loans digitally

Top Home Loan providers:

List of top Home loan providers in 2022:

Loan Against Property (LAP)

A loan against property(LAP) is a secured loan that is sanctioned against the asset pledged as collateral.

  • This asset can either be an owned land, a house, or any other commercial premises.
  • The asset remains as collateral with the lender until the entire loan against property amount is repaid.
  • Lenders hardly approve a loan against a property application without Income Tax Returns or income proof
    so you must disclose your income source.
  • You must also disclose why you lack income proof.

Top Loan Against Property(LAP) providers:

List of top Loan Against Property(LAP) providers in 2022:

Loan Against Insurance Policies

A Loan Against Insurance Policies, also known as pledging, is an extremely popular concept abroad.

  • Such loans are issued by the insurance companies themselves.
  • Your policy will act as a collateral or security against the loan amount.
  • It helps individuals avail a loan based on the insurance amount.
  • With less paperwork, this type of loan gets approved easily.

Top Loan Against Property(LAP) providers:

List of top Loan Against Property(LAP) providers in 2022:

Gold Loan

Gold Loan is a secured financial product where gold jewellery is taken as collateral.

  • You can avail a gold loan in order to finance various needs, such as for educational purposes, medical emergencies,
    going on a holiday, and so on.
  • The gold that has been pledged with the bank or the financial institution acts as the security or collateral
    against which the loan amount is provided..
  • The tenure options can range from a minimum of 3 months to a maximum of 48 months.
  • The other fees and charges that might be applicable on a gold loan are – processing fee,
    late payment charges/ penalty for non-payment of interest, valuation fees, etc.
  • Several lenders offer the option of discount on the prevailing interest rate on the
    loan against gold if the borrower repays the interest regularly.
    This rebate can be 1% - 2% off on the original rate of interest.

Top Gold Loan providers:

List of top Loan Against Property(LAP) providers in 2022:

Loan against Mutual Funds and Shares

Loan against securities is a loan where you pledge your shares, mutual funds or life insurance
policies as collateral to the bank against your loan amount.
Loan against securities enables you to take advantage of your investments by pledging
financial assets such as fixed deposits, mutual funds, insurance,etc.
You can avail loan against equity or hybrid mutual funds by approaching
any non-banking financial company (NBFC) or bank.
For the bank to consider your loan request, you need to pledge your mutual fund units as security for the debt.
Investors can borrow funds against existing investment portfolios to meet investment and liquidity requirements.

Top Loan against Mutual Funds and Shares providers:

List of top Loan Against Property(LAP) providers in 2022:

Loan against Fixed Deposit

Loan against FD (Fixed Deposit) is a type of secured loan where customers
can pledge their fixed deposit as security and get a loan in return.
Here your fixed deposit is held as collateral.
Typically, banks charge about two percentage points higher than the FD rate when they give a loan.

Top Loan against Fixed Deposit providers:

List of top Loan against Fixed Deposit providers in 2022:

Personal Loan

A personal loan is a multipurpose loan that allows funds for varied financial uses.
The loan is unsecured and has an easy application process to avail.
Duration can be for up to 60 months.
You do not need collateral to avail of funds.

Top Personal Loan providers:

List of top Personal Loan providers in 2022:

Short Term Business Loan

  • Short-term loans usually have a tenure of a single year with capital being dispersed within days.
  • Small to medium sized businesses don't require long term funding, but rather a more
    convenient alternative means of funding to manage their equipment leasing and daily needs.
  • This type of financing is best to manage an immediate cash flow gap, an emergency or immediate financing needs.
  • They cover any immediate business expenditures like expansion, covering basic operational, etc.
  • The loan amount availed has to be repaid in instalments within a predetermined repayment tenure.

Top Short Term Business Loan providers:

List of top Short Term Business Loan providers in 2022:

Education Loan | Student Loan

  • An Education Loan also often called a student loan is an amount you can borrow from
    Banks/financial instituitions towards paying for your academic fees or for that of your loved ones
  • These are generally sought for higher education and/or specialised courses in
    esteemed institutes for located overseas or domestically.
  • Your education loan can be disbursed within 2 days post sanction, additionally it is also be
    customised to credit successive advances as required by chosen institute.

Top Education Loan providers:

List of top Education Loan providers in 2022:

Flexi Loan

  • A Flexi Loan is a type of a Personal Loan that make funds available instantly.
  • Here banks define a pre-approved cash limit.
  • If your loan amount is sanctioned it is up to you on how you want to spend the loan amount.
  • When compared to Personal Loan, in Flexi loan the repayment is more flexible.
  • You must only pay interest on the amount you have borrowed and not the sanctioned loan amount.
  • You can also lower your interest by making part-prepayments when you have the funds.
  • Hence, Flexi loans end up saving money as well.
  • You can get instant approval on Flexi loans with the disbursal of the desired amount within 24 hours in most cases.
  • The availability of funds remains at all times.
  • The interest rate is lower than other loans.
  • Minimum documents are required.

Top Flexi Loan providers:

List of Flexi Loan providers in 2022:

Vehicle Loan

  • Vehicle loan, or Auto loans are secured loans where the collateral is the vehicle itself.
  • It is offered by lenders for new cars, used cars, two wheelers (generally called a Two-wheeler Loan)
    and commercial vehicles (generally called a Commercial Vehicle Loan).
  • Due to the nature of automobiles to lose value with time, Auto loans usually have high interest rates.
  • The shorter the time an auto loan is paid, the lower the overall cost of the loan will be.

Top Vehicle Loan providers:

List of Vehicle Loan providers in 2022:

Credits, explained!

  • A credit is famous for its flexibility which allows you to access the amount of money loaned,
    according to your needs at any given time.
  • The credit sets a maximum limit of money, which the customer can use in part or in full.
  • It is completely on the borrower to use all the money received, part of it or none at all.
  • However, interest on credits is usually higher than on a loan.
  • Interest is only paid on the amount used, although there may be a minimum fee payable on the undrawn balance.
  • As soon as you pay the money back, more money will become available, provided that the limit is not exceeded.
  • Unlike the loan, the credit is usually renewed each year in order to allow the customer
    to continue to use this credit facility whenever necessary.
  • To obtain finance through a credit there are cards and credit facilities or lines of credit.
  • They are generally arranged through a current account in which deposits and withdrawals can be made up to the agreed limit.

What is Line of Credit?

  • Unlike loan, here when a borrower is approved for a line of credit, the bank provides them a set
    credit limit that the person can use over and over again, all or in part.
  • This makes it a revolving credit limit, which is literally very convenient.
  • Credit lines can be used for any purpose, however purpose of loans are determined.
  • An individual's credit line operates much like a credit card, and in some cases, like a checking account.
  • Payments are required monthly and are composed of both principal and interest.
  • Lines of credit usually create more immediate, larger impacts on consumer credit reports and credit scores.
  • Interest accumulation only begins once you make a purchase or take out cash against the credit line.

Types of Credit Lines

  • Personal line of credit: This is an unsecured line of credit.
    Just like an unsecured loan, there is no collateral that secures this credit vehicle.
    As such, these require the borrower to have a higher credit score.
    Personal lines of credit normally come with a lower credit limit and higher interest rates.
    Most banks issue this credit to borrowers indefinitely.
  • Business line of credit: These credit lines are used by businesses on an as-needed basis.
    The bank or financial institution considers the company's market value and profitability as well as the risk.
    A business credit line can be secured or unsecured based on how much credit is requested, and interest rates tend to be variable.
  • Home equity line of credit (HELOC): Home equity lines of credit (HELOCs) are secured
    credit facilities commonly backed by the market value of your home.
    A HELOC also factors in how much is owed on the borrower's mortgage.
    The credit limit for most HELOCs can be as high as 80% of a home's market value less the amount owing on your mortgage.
    Most HELOCs come with a specific drawing period—usually up to 10 years.
    During this time, the borrower can use, pay, and reuse the funds over and over again.
    Because they're secured, you can expect to pay lower interest for a HELOC than you would for a personal line of credit.

How is a Line of Credit Different From a Credit Card?

  • The primary difference is that a line of credit lets you borrow money against a revolving credit line
    (rather than the lump sum you’d get with a loan), while a CC allows
    you to make purchases that you then pay back.
  • Both can be either secured or unsecured, depending on your credit scores and qualifications.
    Credit cards may offer reward programs that lines of credit do not.
  • CC usually have higher interest rates, as well as fees for cash advances, and lines of credit offer a fixed interest rate.
  • Typically, a CC will have a variable interest rate that is much higher than what your line of credit would have,
    however, there are some instances where that is not the case.
    If you are able to open an unsecured CC with a 0% APR,
    it may be smart to pay off a loan or line of credit with it.
  • If you have a large balance on a CC (or multiple cards) with a high interest rate,
    your line of credit could be a smart debt consolidation tool, as long as you have a lower interest rate on it.
  • It may also be a better alternative to a CC cash advance since the fees for those are high.
    If you use your line of credit to lower the interest you pay on debt, make sure to make those payments on time.
    The easiest way to do that is to set up automated payments from your business checking account,
    and you may save even more if you pay off the balance before the repayment period is complete.

What is CIBIL Score?

  • Strating with the full form, CIBIL stands for The Credit Information Bureau (India) Limited,
    is the most popular of the four credit information companies licensed by Reserve Bank of India.
  • CIBIL Score is a 3-digit numeric summary of your credit history, rating and report, and ranges from 300 to 900.
    The closer your score is to 900, the better your credit rating is.
  • When you want a loan you must ask yourself what is my CIBIL score? And will I be credit-worthy?
    Your bank will check your credit-worthiness through your credit history and make a credit report.
  • A CIBIL credit score takes time to build up and usually it takes between 18 and 36 months
    or more of credit usage to obtain a satisfactory credit score.
  • The CIBIL score plays a critical role in the loan application process.
    When someone approaches a bank or a financial institution for a loan,
    the lender first checks the applicant’s CIBIL score and report.
    If the CIBIL score is low, the bank may not even consider the application further.
    If the CIBIL score is high, the lender will look into the application and
    consider other details to determine if the applicant is credit-worthy.
  • The CIBIL score works as a first impression for the lender, the higher the score,
    the better are your chances of the loan being reviewed and approved.
    The decision to lend is solely dependent on the bank and CIBIL
    does not in any manner decide if the loan should be sanctioned or not.
  • Typically, a score of 700 is considered good.
  • You can improve your score by practising financial prudence – repay your CC bills on time,
    don’t miss your loan EMIs, never default on debts, use credit wisely.
    You can read more on how to improve your CIBIL score.
  • Check your CIBIL Score.
  • Best platform to pay all your Credit Card bills and earn Cash in return.

Top Credit Card providers:

List of top providers in 2022: