Due to the increasing demand for various consumer products and growing demand in the housing sector, great demand for arranging funds to cater to all these arises. Therefore the need to look for a service sector which fulfils these day to day requirements arises. This need is sufficed by the various banking institutions offering bank loans both in the public and private sectors respectively. These institutions lend loan facilities to the needful aspirants who want to buy a particular product or invest in a business. A bank loan is a facility through which credit is dispersed to an individual for completion of a particular project or to buy certain items. For example a consumer durable loan for buying items like televisions, fridges etc. or a housing loan for construction of a house can be availed from various banks. Bank loans are imparted after completion of various formalities and paper work. A large number of loans are also imparted to the automobile sector. These loans are given for buying various models of cars and two wheelers. Up to eighty percent loan is given for a particular ex showroom value of the automobile. Remaining twenty percent is given as cash by the consumer. All loans have to be repaid in equal monthly installments. The repayment schedule varies from one to twenty years for different loans categories respectively. Interest is charged for a particular loan amount in all categories.
How to avail bank loans ?
A bank loan can be availed after fulfilling some major requirements. One has to be an income tax payee for a couple of years. Amount of tax paid yearly should be suitable for availing a particular amount of loan. Bank statements for a particular timeframe showing details of the various transactions are required. In case of salaried employees a salary statement is required. The bank loans in the housing loan category are for a duration ranging from five to twenty years as per the age of the applicant. The loans against property are generally dispersed by mortgaging a particular portion of land on which a particular project is undertaken. For a bank loan one has to approach a particular financial institution that is a private or a public bank.
What interest needs to be paid?
The interest rate of bank loans varies according to various categories. For example car loan, home loan, student loans , corporate and business loans. For car loans the rate of interest is around nine to twelve percent. For home loans the rate is around eight percent for the first year and eight point five percent to ten percent for the subsequent years. Interest rates for study loans are subsidized around four to five percent. Corporate loans carry interest rates ranging from twelve to fifteen percent. loans of longer duration bear more interest with respect to loans of shorter duration. Therefore interests vary for different categories.
Who governs loans ?
All loans in the public and private sector and their interest rates are governed by a central banking authority. The central authority regulates the loan interest rates and keeps them at a stable limit. This authority sets loan rates as per the various proposals in a particular year's budget. For example if the government announces an interest subsidy for a particular sector it is implemented under the guidelines of the central banking authority. The central authority ensures that the rates being charged as per set guidelines.
How to repay bank loans ?
Bank loans are for a fixed duration of time and are payable in monthly installments. When the loan agreement is made the party availing the loan has to give postdated cheques along with the other documents. These cheques are in equated amounts and include the interest component. If a cheque bounces due to deficient funds in an account one has to bear the bouncing charges. If a person wishes to clear his present loan he has to pay the remaining loan amount plus the foreclosure charges. These charges may be five to ten percent of the remaining loan amount. After clearance of a loan a person can apply for a no objection certificate as is the case with automobile loans. A no objection certificate is a proof that a particular loan has been cleared and there are no dues.
Student loans :
Various student loans are given by the banking institutions. These bank loans are availed by students who want to per sue their higher studies probably a master's degree. They are generally at low interest rates and their repayment generally starts when the individuals get a job and starts earning. There are cases where loans are availed to complete studies at the lower secondary level also. Thus this facility of bank loans helps the aspiring students to complete their studies and grow in life.
Corporate loans :
These bank loans are given to the various business houses. The interest rates are on the higher side with respect to other loans. These are availed by a business enterprise mainly to buy land and for various construction purposes. The loan duration is longer than the other bank loans. These corporate houses have to give a project report of the various project costs to the concerned banking institution. Various maps and the land record documents have to be attached with the loan proposal.
Advantages and disadvantages:
The bank loans are important as they provide a medium to anyone with the requisite documents to avail the benefits. These loans can be used to set up a business and for various study related aspects. The only disadvantage associated is the stringent repayment schedule and the consequences. If an individual cannot repay the loan he might loose a business asset that has been mortgaged with the bank. Thus timely repayment of loan installments is a must.