There is a moment of shortage of funds for everyone at a certain point in life, be it big business organizations, small and medium enterprises or even individuals. Fortunately, we live in a highly revolutionized financial system integrated with the latest technological tools to provide us with the best and most timely financial assistance. Loans are one of the most potent elements of the financial sector, designed to benefit both lenders and borrowers. There are many options available in applying for an EMI loan online.
The process of borrowing money from any lending organization with the terms and conditions of repayment and the interest rate is known as a loan. A digitized economic infrastructure dramatically simplifies the application to the approval process. As internet banking has become a norm, people can leverage the benefit of having applied for and approved loans online from the comfort of their homes.
The types of loans can be broadly classified into four categories:
- Secured loan: It is the type of loan in which the lender requires any asset in the form of collateral, which can be property paper or any financial bond. So that if there is a defaulter, the lender can overcome the loss by taking possession of that asset.
- Unsecured loan: The interest rate on unsecured loans is higher, but the collateral is not required, but the interest rate is higher. This is why borrowers with a high source of income and an excellent credit score are eligible to apply for this type of loan. Personal loans or travel loan can be an example of this type.
- Open-ended loans: Credit cards are the best examples of such types of loans where the borrower can purchase over and over till the defined credit limit, and once the repayment is made, the credit score increases.
- Closed-ended loans: These loans do not provide the option of re-borrowing once the amount is repaid, the balance will decrease, but there is no credit available for further borrowing. Mortgage, vehicle and education loans fall under this category.
Other types of loans are also described depending on our needs, such as education, vehicle, home loans, advance loan, etc.
Eligibility criteria for the loan approval:
Borrowers have a wide range of loan options available to them. So, depending on them, there can be varying degrees of required eligibility factors, but generally, these are the criteria to consider.
- The borrower should maintain a decent credit score with no prior history of defaulting.
- The income flow should be stable and consistent so the lender can trust the borrower.
- For lenders requiring collateral, assets such as financial investments, property documents, etc., are necessary.
- A short-term loan, known as a salary loan is explicitly provided to salaried professionals who earn a substantial income monthly. They can avail three times the amount of their original salary with less-than-perfect credit ratings. The interest rate of such loans is too high and needs to be repaid within a short period.
The decision for loan application should be based on the existing financial situation and the set of prescribed norms by the country’s banking infrastructure.