A loan is a financial agreement where a person or organization borrows money from a lender, usually a bank or financial institution, with the promise to repay it over time. The borrowed amount, called the principal, is paid back with additional charges known as interest.
Loans are used for various purposes such as buying a home, purchasing a car, starting or expanding a business, or covering personal expenses like education or medical emergencies.
The borrower agrees to specific terms, including the repayment schedule, interest rate, and loan duration. Failure to repay the loan on time can lead to penalties, increased interest, or damage to the borrower's credit score.
Loans are categorized into types such as personal loans, home loans, auto loans, business loans, and education loans, each tailored for specific needs and requirements.
A loan is a financial agreement where a lender provides money to a borrower with the condition that the borrower will repay the amount over time, usually with an added interest. The total amount borrowed is known as the principal, and the interest is the cost of borrowing the money.
Loans are repaid in installments over a fixed period called the loan tenure. The borrower agrees to the repayment terms, which include the interest rate, payment schedule, and any penalties for late payment. Lenders assess the borrower’s creditworthiness before approving the loan.
Loans help individuals and businesses meet financial goals such as buying assets, managing emergencies, or expanding operations. However, failure to repay can lead to penalties, higher interest rates, or even legal action.
1. Personal Loan: Unsecured loan used for personal expenses like weddings, travel, or emergencies. It doesn’t require collateral but usually has a higher interest rate.
2. Home Loan: Used to purchase or construct a house. This is a secured loan where the house itself acts as collateral. Home loans usually have lower interest rates and longer repayment terms.
3. Auto Loan: Also called a vehicle loan, it helps individuals buy cars, bikes, or commercial vehicles. The vehicle serves as the security for the loan.
4. Business Loan: Provided to businesses for expansion, working capital, or purchasing equipment. These loans can be secured or unsecured based on the loan amount and business profile.
5. Education Loan: Helps students pay for tuition, books, and other educational expenses. Often comes with flexible repayment options and a moratorium period until the student starts earning.
6. Gold Loan: A secured loan where gold jewelry is pledged as collateral. It offers quick approval and is commonly used for short-term financial needs.
7. Loan Against Property (LAP): A secured loan where a borrower pledges their residential or commercial property to get funds. It is ideal for large expenses like business expansion or debt consolidation.
Understanding how loans work and choosing the right type based on your needs and repayment ability is crucial to maintaining good financial health.