Any substantial asset or verifiable record that is commonly accepted as payment for products and services as well as the repayment of debts, such as taxes, in a certain nation or socioeconomic sector is referred to as money. Banking and modern money are closely related. The financial system and economy of a nation are fundamentally dependent on banks. They support the expansion and growth of the economy. Banks offer a range of services for their clients, including loans, insurance, and savings accounts.
Lending money to individuals in need allows banks to serve as a middleman between those who have extra money (depositors) and those who do not (borrowers). People can open bank accounts, and the banks utilize that money to fund the needs of others who need loans. The depositor receives interest for making deposits at a higher rate of interest than the borrower pays. This is how loans work.
Three Loan Activities in India
- House loans
- Personal loans
- Business loans
House loans
- In India, numerous banks offer a variety of loans, with the most common one being a home loan.
- A home loan is the bank’s offer to their customers so they can own a house or apartment.
- There are various types of home loans offered by banks; a few of them are house remodeling loans, home building loans, and home purchase loans.
- These home loans are given to the borrowers as a small or large sum. This sum can be repaid for up to 30 years.
- The banks offer different interest rates on the loans; the amount of interest depends on which bank you are taking the loan from.
- However, these interest rates are set by banks. To get the best deal when applying for a mortgage loan, it’s critical to evaluate the interest rates and terms offered by several institutions.
- Additionally, borrowers should be aware of any additional charges the bank could make, like processing or appraisal charges.
- For example, if a customer applies for a loan from SBI bank for around 20 lakhs, the bank will offer them a scheme of SBI home loan to which they can easily apply with a low rate of interest, and then the bank will inform them about the entire procedure in which the customer had to submit some documents and pass the bank’s tests to get their loan. After they accept the loan, the bank will tell them about the monthly installments and tenure period.
Personal Loans
- People can use unsecured personal loans to fulfill their financial demands on an as-needed basis.
- Popular banks that provide loans for personal usage include ICICI, SBI, HDFC, and Axis Bank.
- The loan amount ranges from 50,000 to 20 lakh rupees, with a typical payback period of 1 to 5 years.
- Personal loans typically have interest rates that are higher than mortgages.
- To apply for a personal loan in India, a person usually has to submit documentation, including evidence of identification, proof of income, and proof of address.
- For example, if a customer applies for a loan from ICICI Bank with a loan amount of around 5 lakhs, the bank will offer them a personal loan, which they can easily apply for with a variable rate of interest. For this loan, the borrower has to submit some documents and pass the bank’s tests to get their loan. After they accept the loan, the bank will tell them about the monthly installments and tenure period. A personal loan can be used to meet basic needs, such as those related to education, starting a business, or other necessities.
Business Loans
- Businesses use loans for a variety of reasons, such as boosting sales or working capital.
- Working capital loans, term loans, and project loans are all types of business loans.
- Loans for working capital are frequently utilized to fund a company’s ongoing operations.
- This may involve costs for items like inventory, wages, and other expenditures.
- The loan amount and payback period, which can last up to 7 years, are determined by the business’s credit.
- Personal loans often have lower interest rates than business loans.
- Project loans are used to fund particular projects, such as the building of a new factory or the introduction of a new product line.
- Similar to term loans, they are often repaid with interest over time.
- For example, if someone wants to start a new business, they will need money, which can be obtained easily from a variety of banks. As banks offer business loans, anyone can start their business, and for this, they just need to apply for a loan and follow the procedure for getting one, and after getting the loan, they start their business by paying monthly installments.
FAQs on Loan Activities
Question 1: Define the bank and write its function.
Answer:
A bank is a type of financial institution that offers loans, creates demand deposits from public deposits, and takes deposits from the general public. The function of the bank:
- Accepting of deposits
- Give loans
- Deals with foreign exchange
Question 2: Write the loan activities of the bank.
Answer:
Loan activities of the bank include:
- Personal loans
- Home loans
- Student loans
- Business loans
- Medical loans
- Wedding loans
Question 3: Write about student loans.
Answer:
A special kind of loan called a student loan is used to cover the costs of an academic program, often at a college or vocational school, though it is also possible to use it for private Education. A sort of financial aid called student loans is provided to assist in helping reduce the costs of an academic program, such as one at a university, professional institute, or career training center. A student loan is also referred to as an education loan.
Question 4: Write any two advantages and disadvantages of personal loans.
Answer:
Advantages
- Since you don’t need an asset to secure one against, anyone over the age of 18 can access one.
- The length of time you have to repay can be flexible; this will depend on how much you borrow.
Disadvantages
- The lengthy repayment terms that some secured loans offer—up to 25 years—are not available to you.
- To get the greatest interest rates and deals, you need a high credit score.
Question 5: What are the eligibility factors for taking loans?
Answer:
- Employment Stability: Loan applications will not be processed unless the applicant is self-employed and has a minimum of five years of total earnings, or unless the applicant is salaried and has been employed for at least two years in the present profession.
- Age requirements: The applicant’s chances of receiving a loan increase with younger age.
- Credit Rating: Having a good credit rating enhances the likelihood of receiving a loan with more flexibility about the loan’s terms, including the amount, the EMI, and the tenure.
- Employer: The applicant will appear more credible if they are employed by a company with a solid reputation and a high turnover rate.
- Financial Situation: When determining eligibility, the past track record of financial stability is very important.