What is meant by a loan?
Spending lump sums from one’s income isn’t always possible or plausible. Paying for your child’s education, wedding costs, revamping your home, etc. are some major expenses that not everybody is able to pay from their savings.
To bear these major expenses in an easy and stress-free manner, you can avail a loan. Let’s explore what a loan means and what it entails.
What exactly is a loan?
A loan is a payment contract between a borrower and a lender wherein the borrower is willing to pay back the amount borrowed as timely monthly instalments of the same amount. These payments are referred to as EMIs and include an additional interest.
In simplest terms, loans give borrowers relatively quick access to cash, which is to be repaid later. The principal amount must be paid along with the stipulated interest within a specific tenure.
For instance, a principal amount of ₹1,00,000 borrowed at an interest rate of 11% for a tenure of three years will require the borrower to pay approximately ₹1,30,859. This is because ₹17,859 is the interest payable.
What are loans used for?
Here are some reasons why people take loans:
- Medical emergencies
- Streamlining payments
- Home repairs
- Weddings
- Higher education
Loans are also availed as a means of improving one’s credit score. When borrowers repay in a timely and responsible manner, their credit score improves.
What are the factors that determine loan eligibility?
- Employment stability
- Income
- Credit score
- Existing debt
- Age
- Location
- Citizenship
How to improve loan eligibility?
- Pay outstanding debts
- Check credit score
- Lower credit use
- Timely repayments
To gain more insight about the loan process, discover which loan would best suit your needs, and learn how you can avail a loan quickly and easily, contact the financial experts at Arthavidhi. Sign up, login, or call to book a consultation today.
