In the most common terms, bank loan is borrowed capital from the bank which can be used for multiple purposes. Due to increased cases of frauds the security for such loans have become more stringent and there are usually certain criteria that one has to fulfill in order to be a part of a loan agreement.
Technicalities of a bank loan-
The simplest terms include an agreement between the bank and the borrower which states the sum, the interest compounded monthly (usually) and the time during which the loan has to be paid back. In today's world there are two most common forms of bank loans-
- Secure loans- An agreement is called a secure loan when the borrower pledges an asset against the loan as a guarantee of return for the amount. For example, a person who has no mortgage on his house or apartment can pledge that against an automobile loan from his bank. Even a mortgage loan falls under the category of a secure loan. In case of secure loans, the bank has the full right to seize your property in case you fail to pay the installments.
- Unsecured loans- This is less common today where a person can borrow money from a bank without any guarantee. This is considered a high-risk loan as the lender does not have any way of ensuring the return of the borrowed money. This is somewhat more common in case of small education loans
- The most common types of bank loans- Although
there are several categories and sub categories of bank loans, here
we shall discuss the main types of loans which are sanctioned by
all national banks. These include-
- Personal loans-. This is a loan which is sanctioned to an individual. Secured and unsecured loans are basic sub categories of personal loans
- Home loans-. These are sanctioned to individuals as well; however, the money can only be utilized to buy personal properties only. People usually apply for home loans when they wish to buy their own apartments and houses.
- Automobile loans-. This is a form of personal loan which is provided for the purchase of new as well as old automobiles. However these automobiles can be used for commercial purposes as well. In case the borrower fails to pay the monthly installments, the bank reserves the right to re-possess the purchased vehicle.
- Investment loans-. This is usually taken for business purposes and hence the amounts are also larger than any other forms of personal loans. This can be sanctioned in the name of a group or business. these are almost always secure loans since the failure to pay them back results in reassignment of business investments to make up for the money owed.
- How is a loan evaluated?.
- Filing of a loan application form.
- Submission of the application form.
- Tallying of the credit score and report with CIBIL.
- Verification of the credit information and income details.
- Verification of other documents provided.
- A loan is sanctioned only if all the eligibility criteria are fulfilled. The failure to comply with any of the given criteria leads to instant rejection of loan applications.