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:
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.
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
- A person who can give a guarantee (In case of few unsecured loans)