A loan is money that one individual, organization, or institution lends to another individual, organization, or institution for a specific period. The borrower takes the loan intending to return the actual principal with interest.

Important elements of a Loan:

  • Principal Amount – The actual amount of money being borrowed.
  • Interest Rate – The annual percentage rate a lender charges on a loan.
  • EMI – Equated Monthly Installment is the monthly payment one makes to repay the loan.

Broadly, Loans are categorized into secured and unsecured loans:

Secured loans

These types of loans are being secured by some asset or property. If the borrower defaults on his/her loan, in that situation, the bank will become the owner of that asset or property. A mortgage is the most popular type of secured loan.

Unsecured loans

Other than secured loans, in unsecured loans, the borrower does not keep any of his/her assets or property as collateral. These types of loans can play an essential tool in the business world for short-term funds. A personal loan is the most common example of an unsecured loan.

Most common types of loans in India:

  • Home Loan
  • Mortgage Loan
  • Personal Loan
  • Vehicle Loan
  • Business Loan
  • Gold Loan
  • Education Loan

Important Factors which concerns a Loan:

  • Age of the borrower
  • Down Payment
  • Income
  • Tenure
  • Interest
  • EMI
  • A person who can give a guarantee (In case of few unsecured loans)