About Loan benefits
What are Benefits of Loan?
There are many advantages And disadvantages to taking a loan. So you must be aware about the benefits And disadvantages of taking a loan for a better financial decision.
- We all have some dreams, no matter if they are big or small. For example you want to buy a dream home, dream car, world tour, vacations etc. for which we need money.
We have 2 options to complete the dream.
- Savings ( money we have ) – most people don’t go for this option because your savings are not enough to fulfill all your dreams and it takes a lot of time , so people don’t like it today. Example – if a person wants to buy a house of 25 lakhs but his salary is just 20 thousand, he has to save for a long time due to which he has to wait for so long to fulfill his dream.
So today, people don’t want to wait because there Is an easy option available to complete their dreams today and right now.
- The most demanded option is taking a loan ( and paying EMI) – it looks easy and attractive and most importantly, we live our dreams today and now .
Advantages of taking loans
- Instant access to our dreams
- Loan in an emergency situation- example suddenly you face an emergency condition like medical situation or college fees etc. So you need a high amount of money to tackle that situation, the best way to tackle it is to borrow a loan.
- Saving and investment by paying loans EMI – example..buying loan on EMI makes sure that we will be disciplined in saving and investment by default. In case of home loan we are forced to pay EMI which is saving and investment at the same time. So this is a great advantage of taking such loans and making savings and investment compulsory.
- Loans are used as capital in business to earn more profit- you are doing a business in which you get a net profit of 30% every year but you don’t have money more than 5 lac . So your current profit is RS 1.5 Lac per year
Example – if you take 5 lac Rs as loan @12% and invest in your business then your new capital will be Rs 10 lac .so, 30% profit on Rs 10 lac capital will be = 3 lac
It means you will pay 60,000RS (12% interest on 5 lac loan)
New net profit = 3,00,000 – 60,000
= RS 2,40,000
So one biggest advantage of taking a loan is that you can earn more if you use it well in a business.
Remember- start a business with a small loan and learn first how to invest it properly.
Types of loans
- Personal loan – this loan is the fixed amount of money borrowed by an individual at a fixed rate and repaid over a fixed period of time.
- interest rates are base.
- No medium is required
- Loan approval is quick
2. Car loan – car loans are taken by an individual to Purchase car at full price by making monthly installments over a period of time.
- Flexibility to choose the tenure
- Easy to buy a car
- Interest rates are decent
3. Home loan – home loans are taken by the borrowers to buy a property or house.
Home loan Advantages –
- interest rates are low
- Tax benefits
- No collateral needed
4. Educational loan – educational loan is taken by students for higher education abroad or in a country. This loan is beneficial for students who are not financially stable for higher studies.
Educational loan Advantages –
- Tax benefits
- Coverage of full course
- No need to pay for a moratorium period.
- Saving protection
From where you can take loan
- Family members etc.
What is loan?
Loan is that amount which is borrowed by an individual organization or etc. When an individual is not having a sufficient amount for the particular reasons he takes loan from any organization. Generally a loan is given Based on interest. The person who has taken loan pays instalment with the interest rate to repay the loan. Loans are mostly provided for a specific time period. Consumers have to pay that particular amount in a given time period with interest rates.
In simple language we can say that a loan is an amount which you borrow from a friend’s financial institution or a bank, and then repay that amount with principal and interest rates. In my opinion loans are beneficial for us, but we should only take loans if we can repay that otherwise we can be at a loss. As we know when financially an amount is borrowed somewhere for any of the work is known as loan and when we borrow that amount for renovating and buying a home that is known as home loan. Whereas we take loans for our personal needs is known as personal loan and many more are available. People take loans according to their needs and requirements.
Many of the banks and organizations provide loans. HDFC Bank ICI bank PNB, Bank of Baroda are from those banks which provide loans and many more are also there. Many banks provide loans on very low interest rates. Bank home loans provide you a loan for buying, renovating or redecorating our home by using our way. Many of the banks provide you a quick process and easy repayment options.
As we know because of financial problems many people are not that much financially stable so they can buy a home, car or etc . Many of the people’s dreams are to fulfil own and their children’s needs. So now you can fulfill your dream by having a loan on some interest rates. Many banks have launched a covid 19 special loan for the credit holders and salary account holders in their state. This is aimed at relieving the clients from the difficulty of liquidity that may be caused by lockdown. Special personal loans for covid -19 are different from normal loans.
How to take loan
As we know there is a procedure to do you or to apply for anything. For having a loan Firstly, we have to decide from which institution or Bank ok we want to take loan. After that we have to know what are the basic requirements for having a loan from that institution or Bank. Generally for having loan you should be eligible for it and required eligibility are as follows:
1. Minimum age of applicant should be 23 and maximum should be 58.
2. Your nationality should be Indian.
3. Good income of the applicant is required. If the amount of applicant’s income is high then it will become easy to apply for larger loans with longer tenure.
4. You have to repay the particular installment in the given tenure.
1. Firstly analyze your financial situation and how much amount you want to borrow.
2. Fill an application form of a bank from where you are comfortable to take a loan.
3. Complete all the formalities.
4. After you provide the entire details, the bank will check all the information you have provided.
5. If you are eligible and your all details are correct your loan will be approved.
6. After your loan is approved then you should ask for the landing contract and review the terms. Should, not forget to take any special note of the loan interest rates repayment process etc. This will help you if any problem is caused. In the case your application for loan is rejected you have any legal right to know the reason for it and can apply again later after improving the mistakes.
Types of loans
There are different types of loans from which some as follows:
- Personal loans
Many banks and Institutions of personal loans, but this is an expensive way to get money because this is an unsecured loan. And postal loans can be obtained around Hundreds to a thousand Rupees. The repayment period in the personal loan is two to five years. In this, the person who is boring should have a form of income verification or proof of any asset which is worth at least the amount borrowed. Within two or three days you can know that your application is approved or rejected. It doesn’t have a big procedure.
- Home loans
People who want to have their home or to reconstruct their home take home loans. Many of the people dream to have their home which is constructed according to them. Because of not having that much amount they take loans. Amount of loan depends upon the value of that property. In this mainly you have to pay installments with the interest rate for the given tenure. Bank employers will investigate information you have provided. If you are eligible and the loan gets approved you can have that amount and can we pay that with interest rates.
- Small business loans
Many of the Peoples to take small business loans are easily available in mostly banks and small business administration also. Many of the people take small business loans for expanding their business out when they start a new business. This loan includes a personal guarantee. Mainly small business loans are extended periods of 5 to 25 years. Interest rates of this loan are negotiable. This loan is helpful for many of the Businessmen who want to extend their business.
- Gold loans.
Many of the banks and other Institutions provide gold loans in which you can have any loan but for the guarantee, you provide gold. Amount of loan is given according to the value of gold. You have to pay the interest rate per month, and when you have that much amount, you can repay it. But still, you have to pay the interest rates otherwise your Gold will be sold by them for having a borrowed amount back. These are the main types of loans accepted; some are also provided by banks and institutions.
Kind of loans:
There are two kinds of loans, secured and unsecured loans.
- As per the name pronounces secure loans are from that loan which are connected to a piece of something valuable like home or car. Whereas unsecured loans are not protected by any of the valuable things. In a case if a person is not paying installments or in any of the default the lender cannot take our valuable things automatically. They both have a difference in their interest to rate repayment terms, borrowing limit etc.
- In Secured loans a person can borrow in large amounts because lenders are confident that they will get their amount back. In case of any default they can have their money back either by repayment or by the sale of a valuable thing. Whereas in Unsecured loans lower limits are provided and take more interest than secure loans because, in this lender is taking on more financial risk. Any of the people can have an unsecured loan because, in this we don,’t have to give any of the valuable things. So, it is very beneficial for needy people who don,’t have any of the valuable things. Examples of secured loans are home loan, car loan etc. Examples of unsecured loans are student’s loan, personal loans, etc.
Open Ended loans & Close ended loans
Open-ended loans are those loans which you can take more than once. Mostly credit cards and credit lines are common types of open-ended loans. In these both we have a particular card limit against which we cannot purchase anything. Every time when we purchase anything that particular amount is reduced from your available credit card amount. Credit card limit is always fixed. You cannot use more than that amount.
Closed ended loans
These are from those loans which after taking once you can only take after repaying the first one. You cannot have another loan before repaying the first one. In this when you pay installments then that balance is reduced from your amount. But you can only take another after repaying the first one properly. For example, Home loans, car loans, studying loans, auto loans, etc.
Main Reasons to take loans —
1. When you want that goal of life to be complete in the right time, so for this you need some financial assistance. Then you need a loan.
2. When what happens to someone, we do not even have an idea for that. So this you can apply for the loan.
Before applying loan what things are important to know —
It’s easy to take a loan. But before you must have to know some things.
1. Firstly, we should now loan repayment procedure & deduction charges, stamps duties, processing piece, documentation charges.
2. Please check your credit history before applying for a loan. This credit history is a kind of record that shows your investment, loans taken, and repayment records.
3. We should discuss the rate of interest.
4. If you apply for a loan, when you missed payment deadlines of the loan then you will have to pay a penalty fee.
5. Do research of different banks, so you can know about the best interest rates, EMI tenure and other charges for applying for a loan.
6. You should read all terms & conditions about the loan.
Loans are one of the most important for economic growth of the country. It lay emphasis on the availing of financial assistance to those who really need them. Money in need is the money indeed. This quote reveals that time really matters in case we need something particular. So loan bridges the gap between the need of money to availing of money. Loans provide financial assistance at the right time, so one could do productive activities from that money. There are various benefits of loan, and they are as follows:-
Concessional Interest rates
It facilitates tax benefits
Tax payment is the liability of each individual, but after the procurement of loan, the liability of the individual automatically gets decreased because of the expenses get more by the payment of tax and income get less due to the payment of tax so consequently one has to pay less tax and thus procurement of loan facilitates decrement in tax payment. It facilitates in procurement of home:-Loans also facilitates the availability of home at the present time.
The prices of the home get increased by the passage of time due to the fact of inflation but because of the ways of loan, we can avail property at lower prices.
It facilitates in buying the property
Loans also facilitate the buying of property and one can become the owner of the property without even having our money. Pne can be the owner of the house without even buying their own house. Banks and Loan houses provide home loans to people who really are in extreme need of that property.
It facilitates to payment in instalments.
One can get the home or any other things by paying the money of that particular asset. It also decreases the burden of the payment of money because paying money in installments is much easier than lump sum payment so one can buy their house easily by paying the installments in a very flexible manner.
It facilitates in the reduction of GST.
Tax benefits are being given when a loan is being taken. In that case tax benefits are being given to the borrowers. When a loan is being taken then expenses of the borrower is being increased and income gets decreased and consequently tax benefits are being given to the borrowers and then the liability of tax payment get decreased. One can become the homeowner today:-By taking home loans, one can become the homeowner today by paying the amount to the dealer and one can become the homeowner today, and the payment of the loan money is very flexible because the one has to pay the money in installments and consequently the burden of the tax get decreased.
It also facilitates financial assistance at affordable prices.
The loan interest rates are concessional so one can get aid to financial assistance at affordable and concessional rates. In other words one can get financial assistance there and then and in time of extreme need one can get the financial assistance at reasonable prices.
It facilitates flexibility.
There is flexibility in paying the installments so one can pay the money in installment and loan companies can’t force their customers on how to spend their loan money so there is flexibility in decision-making.
It facilitates decision-making.
There is flexibility in the decision of management of money one can borrow and there is also flexibility in paying the money in installments. An entrepreneur can undertake and identify himself with a loan even if there is no money. You can start your own business with the help of loans. Business loans are professional loans unsecured that is you don’t have to pay any security against a loan. The interest rate in commercial or business loans are lower than any other loan, which is helpful in commercial or business loans.
Eligibility for taking loan:-
- Age of the borrower:-There are various aspects that are being covered in the eligibility criteria of taking a loan. First in the queue, the age of the borrower and loan companies can give loans to the younger borrowers and thus the age of the borrower is a very important aspect in considering the eligibility of taking a loan.
- The financial condition of the borrower:-Financial condition of the borrower also affects the eligibility of the borrower. So second in the queue, we have the financial condition of the borrower.
- If the financial condition of the borrower is poorer than no loan will be availed. Collateral:-Third in the queue, we have collateral, and it is one of the important criteria of eligibility. One can have enough (collateral) than only loan can be provided. The amount of the loan availed is less than collateral. Permanent profession or job:-Third in the queue, we have permanent professions or jobs. So, a permanent profession or job is a very important criteria for eligibility.
Repayment capacity of the borrower:
- Repayment capacity of the borrower is very important so if the repayment capacity of the borrower should be strong.
- Value of the collateral: – Next in the queue, we have the value of the collateral so thus it is one of the important aspects of collateral value of collateral.
- Birth the place of the borrower: – Next criteria are the birth the place of the borrower, and the borrower should be the citizen of India. Previous loan reports:- Next eligibility criteria we have the loan reports of the person and if it is bad then loan is not availed.
- Income statements of the borrower: – Next in the queue we have income of the borrower and if it is (rational) than loan is availed.
Documents required in the procurement of loan:-
1. An application form should be properly filled with passport size photographs. 2. Proof of income or business profiles.
3. Profit and loss amount of previous three years.
4. A number of people depend upon your income. Identification documents:-First in the queue, we have the identification documents and these include Aadhar card, id proof, PAN CARD, etc. Resident proof:-Second in the queue, we have the resident proof, and it is one of the important documents.
- Documents related to business: – Next in the queue, we have the documents related to business, such as business documents, income tax returns, etc.
- Documents related to job:- Next in the queue, we have the documents related to jobs such as salary scale documents, returns, etc.
- Documents related to the financial capacity of the borrower:- Next in the queue, we have the documents related to the financial capacity of the borrower and this includes the income tax returns and tax returns.
- Documents related to income tax returns:- Next in the queue, we have the documents related to income tax, and this is one of the most important documents.
- Documents related to previous loan procurement history:- Next in the queue, we have the documents related to the previous loan, the history of the borrower and if it is poor then no loan is availed.
- Documents related to the payment of taxes: – Next in the queue, we have the documents related to the payment of taxes and if there is a default in payment then no loan should be availed.
- Documents related to the credit worthiness of the borrower:- Next in the queue, we have the documents related to the credit worthiness of the borrower and if it is poorer than no loan is availed.
Disadvantages of loans —
1. Not all people get trade loans easily. Banks lend only to the trusted individuals, considering the credit of their bank account. Those applying for new loans have to work hard on it.
2. Form and application process are very difficult for bank loans for business. To obtain this loan, you need to explain your entire business plan in front of the bank. In particular, you’ll have to put a good, successful proposal before a banker and assure them that you’ll have a loan if your business fails.
3. Even if your business sinks or you fail, you still need to pay off this unsecured loan by selling your home or car. Instead of paying loan money, the Banks also have rights to do what property or property they can to meet your loan amount.