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Understanding loans, debts, interests and other financial theories: Loans; debts; interests and debts are various financial terms often used in conversation sessions between the economic intellectuals. Maybe you usually hear people talking about loans; interest, debts and many other different financial concepts but you do not know exactly what these terms mean. Here we will discuss loans, its meaning, the concept of loan and the various points to jot down before shopping for loans.
A loan is when a borrower picks money from a lender, a bank, an organization, the public or any other financial institution and pays the interest additionally along with the sum before the completion of the decided term period. This money is borrowed for any reason from education to building a new house, from starting own business to buying a new car.
There are various kinds of loans but the two most important ones are the secured loans and the unsecured ones. The secure loans are lent against the security or some property or other precious possession to mortgage. In case the borrower is not able to pay back the loan along with the due interest, he looses his mortgaged property etc. on the other hand, the unsecured loans are the ones against which no property or security is held by the lender. Before you sign in to apply for a loan, make sure you go through all the available options like banks, financial institutes etc and pick the one which provides the best option among all. Deeply study the interest rates and other conditions before going for it. Make sure you do not leave any query unsolved in your mind. Confirm each and every thing no matter even if the personnel gets fed up of you. Dont forget, we have seen enough examples of people who lost everything they had in order to pay back their loans. The lender will not show any mercy to you in case you are not able to pay back your loan on time, no matter how nice and sweet they may appear rite now. Be aware and well-acquitted with the knowledge of loan, debt and credit. Make sure that you have enough information so that you cannot be befooled. Calculate your earnings, expenditure, loan borrowed and the interest rates, so that you are not left hoodwinked.
Cut down all your additional expenses and calculate thoroughly if you can mange your expenses without raising the loan. Remember, it is easy to get a loan sanctioned but it is not that easy to pay it back on time.
In the world of inflation, there is nothing that you can call affordable. For instance, building a house at a location of your choice with all the amenities you can ever dream of, fulfilling all your needs is a far away dream for a middle class family. In such conditions, loans are the best options. After all, a home is for life. If a person is sure to pay back the loan on time, he would definitely plan to apply for loan. Though they build or buy house with aid from banks, they somehow manage to survive through the heavy interests and are able to get their loans consolidated. But there are others who take loans out of excitement but are somehow not able to pay it back. In that case, they loose the ownership of their house and the house is ultimately occupied by the bank or the financer. Likewise, when we talk about student loan, the parents or the student himself thinks that once he completes his education, he will be in a position to apply for a good job and will be able to pay back all the loans and debts. Not just that, people even borrow loans for the marriage of their children, especially for the daughters wedding in a few orthodox families who want the wedding ceremony to be lavish and extravagant. Different people have different needs and reasons for obtaining loans. But borrow only as much as you need, for you will have to pay back with interest for each single penny.
Well, whatever be your reason to borrow loan, you should always keep in mind a few important things before stepping ahead: Discuss with some lenders and try to get to know more about their conditions. Compare the different schemes and policies; remember different lenders have different interest rates. Try to bargain for better deal. Discuss in detail, how you will be paying. Talk about the term, number of installments, amount to be paid in each installment etc. There are a few key words that you will come across while you are in the procedure of obtaining loans. Therefore, you must firstly understand these terms well in order to avoid confusions: Loan Types: These are various types, such as secured loans, unsecured loans, government loans or private loans. Loan types can also be categorized on the basis of need like home loan, education loan, business loan, vehicle loan, traveling loan etc. Loan Amount: The sum of money that you need to borrow is the loan amount. It does not include the interest that you will have to pay to the lender. Loan Length: The term for which you are borrowing money is loan length. The borrower needs to pay back the amount as well as the interest to the lender within this time period. Outstanding Loans: Suppose you have already taken a loan and you wish to borrow more money for same or some other reason. You can consolidate your interest rate by combining two different loans. The new loan will be called Outstanding Loan. Interest Rate: The rate at which the interest over your loan is calculated is called interest rate. Last but the most important is what are the basic documents and formalities required to apply for loan. They will generally ask for the proof of your identity, your permanent residential address, date of birth, contact number, drivers license and email address. Not only this, you also need to produce before them at two people as your guarantors.
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