Things to know before applying for a loan
The term loan means the process of lending money by one or more people, agencies, or any other entities to different individuals or organizations. The borrower incurs a debt and is usually responsible for the payment of the interest on that debt until the principal amount borrowed is not repaid. In times like these when income exceeds the expenditure more often than not, or people are desirous of having a higher standard of living, loans let people realize their dreams sooner.

What are the types of loans?

• Secured Loan: In this type of loan a borrower pledges an asset like a car or a house as a collateral.
• Unsecured Loan: This type of loan is not secured against any of the borrower’s assets. Examples of such loans include credit card debt, personal loans, bank overdrafts, peer-to-peer lending, credit facilities or lines of credits.
• Demand Loans: These are short-term loans which typically do not have a fixed date for repayment. They are called “Demand loans” since they allow the lender to ask for repayment at any time. They may be secured or unsecured.
• Subsidized Loans: In a subsidized loan, the interest is reduced by an explicit or hidden subsidy. In the United States, it is in the context of a student loan on which no interest is accrued on the loan till the student remains enrolled in the education.
• Concessional Loans: Concessional loans are granted on more generous terms than market loans either through interest rates which are below-market, by grace periods, or a combination of both. Also called “Soft loans”, these types of loans may be given by the foreign governments to the developing countries or may be offered to the lending institution’s employees as an “employee benefit.”

What does having personal finances in order refer to?

• Bankers may want to have a look at your global financial statement which may include your personal information like student loans, personal credit card debt and any other loan payments.
• If you are already having a lot of personal debt and very little collateral that you can provide to the bank then you may need to find a strong co-signer.

How much is the down payment?

• In any type of loan, banks usually provide up to 90% of the amount. The remaining amount which is known as the margin has to be put in by the borrower.
• The extent of the loan can vary between 80 to 90% of the total amount.
• So it is important to figure out the amount of money you will need up front.

Are there tax benefits to taking a loan?

• It is better to know if you are getting a certain tax break on some loans.
• But only two types of loans offer tax benefits- education loans and home loans.
• There are no tax benefits on a personal loan or vehicle loan.
• Tax breaks are useful in lowering the effective cost of borrowing.

Is your bank offering a good rate?

• Asking your bank is the best approach in this case and doing your research thoroughly too will give you a good idea.
• Banks may often give a discount of up to 0.5% in the interest rate if you are having a very good credit history or it may also waive off the processing fee or the administration fee.

How do you decide on the repayment of your loan?

• Your loan term is determined on the prior agreement with your lender.
• The longer your loan term is the smaller is your repayments, but you have to pay more overall to borrow the same amount.
• While deciding on an ideal loan term consider your comfortable repayment amount.
• You also have to take into consideration any other debts you need to service alongside a new loan.

How much will you pay for your loan in total?

• Assessing your financial goals and how you plan on achieving them helps in knowing exactly how much money will you be paying overall.
• While the cost will include the principal and the interest amount, some organizations may also include other charges like establishment fee, account-keeping fees as well as fees to terminate your loan early.