Types of Loans, Eligibility, How to Apply: All You Need to Know

Tanvi Kaushik

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There are times when we need extra funds to either buy certain things or do something. To meet our requirements, we apply for loans from a lender.

Financial institutions approve loan applications and lend money in exchange for a certain guarantee. They need to be assured that the borrower will repay the loan amount within the stipulated time.

While applying for a loan, we need to be aware of a few basic things and understand eligibility criteria to avoid confusion. This article gives you a sneak peek into everything you require to get a loan.

Types of Loans

Generally, banks and other financial institutions offer two types of loans to lenders, secured and unsecured loans.

Secured Loans

Borrowers need to pledge collateral to get private loans. If they fail to repay the loan, the bank has the right to use the collateral to recover the pending amount.

Unsecured Loans

This personal loan doesn’t require any collateral. The application is assessed based on borrowers’ credit history, credit score, and other factors. However, the interest rate is higher than secured loans as there is no way to recover the amount.

Based on the Purpose

People seek a private personal loan for various reasons, including:

Personal Loan

Whenever you need liquidity of funds, be it for repaying an old debt, medical emergency, buying a gadget/furniture/house, or for any other purpose, apply for a private loan online. Bank will approve the application based on your credit history and CIBIL score.

Education Loan

This is an instant loan to arrange funds to pursue a degree or diploma program from a reputable college. You will need to submit an admission pass from the institution to seek financing.

Vehicle Loan

To buy a two-wheeler or four-wheeler, you can get a vehicle loan. As this loan rarely provides 100% financing, you will need to arrange a down payment and the vehicle will belong to the lender until the amount is repaid.

Home Loan

This loan is to buy, construct, renovate, or repair a house or a flat. It will be the property of the lender until you repay the amount.

Based on the Pledged Assets

Depending on the collateral, loans can be:

Gold Loan

The borrower pledges gold, be it jewellery or bars, to get a loan. The lending amount will depend on several factors, such as purity and money can be used for any purpose.

Loan Against Assets

Many individuals and businesses pledge property, FDs, shares, insurance policies, and other assets to borrow money. The lender assesses the value of the asset and approves the loan after keeping some margin.

Checklist to Review Loan Applications

Credit Score

Your credit score helps lenders assess your creditworthiness based on your credit history. Although most banks need a CIBIL score of 750 to approve a loan, many lenders accept 650 or higher scores as well.

Income and Employment History

You can apply for an instant personal loan online if you have a consistent and stable work history. This assures a lender of your capability to repay the loan.

Debt-to-Income Ratio

With respect to the income, your debt must be low to get your loan approved. For 1 lakh monthly income, if your debt exceeds Rs 75,000, then lenders may not provide you with the loan.

Collateral

Lenders decide on the interest rate based on the current market value of the collateral.

Down Payment

If you have an effective saving plan and execute it well to make a down payment, then lenders will trust you more.

Eligibility for Loan

Personal loan eligibility criteria include:

Age

Borrowers’ age indicates their ability to repay loans and manage debts.

Citizenship

Applicants must have Indian citizenship.

Work Experience

To get a loan application approved, applicants must have at least 1 year of work experience with 2 months’ stable employment at the current job.

Employer Category

Borrowers can be employed in an MNC, private firm, or government organization.

Monthly Income

The minimum monthly income of an applicant must be at least Rs 20,000.

Documents Required

Salaried Applicants

Loan applications for personal loans for salaried people must be submitted with the following documents:

● Application with a photograph

● Identity and address proof

● Bank account statement of last 6 months

● Latest salary slip

● Form 16

Self-Employed Applicants

A personal loan for self-employed needs the following documents:

● Application with a photograph

● Last 6 months’ bank statement

● Proof of business

● Identity and address proof

● Business profile

● Income Tax returns (self and business) for the last three years

● Profit/loss statements and balance sheets for the last three years

How to Apply for a Loan?

Applying for a personal loan is simple, but you need to take care of a few steps.

● Establish your financial goal and determine your needs.

● If you want, visit the nearby bank branch to talk to the manager or apply for an instant personal loan online and steer past all the trouble.

● Select the lender or bank based on your eligibility and research.

● Visit the official website or branch of the bank to know all the terms and conditions.

● Submit or upload necessary documents.

● Your job is done. Now, the bank will review your application and contact you to inform the status of your application.

Takeaway

Now that are you familiar with bank requirements and types of loans; we are sure that it will help you submit a loan application without much hassle. Remember to check the interest rate, repayment period, and other factors before making the final call.

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Tanvi Kaushik specializes in Content Marketing and works with the Digital Team at KreditBee - India's fastest personal loan platform where self-employed and salaried professionals can easily avail of personal loans in just a few minutes.

Holtsville, NY
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