A loan denotes lending cash or money to one or multiple people, companies, institutions, and so on. The debt is taken by the recipient of the loan and he/she has to pay interest on the same until the amount is repaid. He/she will have to thus repay both the principal (the amount borrowed) and interest on the same. The document or loan agreement will contain details of the amount borrowed, the tenure of the loan, repayment date, interest rate charged, and other terms and conditions. The interest is the incentive for the lender to sanction any loan. Loans are usually given by banks, financial institutions, and companies.
A loan may be called lending money, property or any other item to any other individual, entity or multiple individuals. In exchange, the recipient will be repaying the value of the loan along with interest and other charges. Loans may be given as a one-time sum or there could be a line of credit, i.e. where the borrower keeps taking money as per requirements and repaying as per his/her convenience. Loans have several types including home loans, personal loans, secured loans, unsecured loans, car loans, two-wheeler loans, commercial vehicle loans, etc.
The real estate sector is inextricably linked to the term loan. There are home loans which are sanctioned by banks and other financial institutions for helping people purchase residential units for occupation, investment, or earning rental income. Home loans are sanctioned on the basis of the credit-worthiness of the applicant who has to make a down payment as specified by the lender, for buying the property in question. The loan amount is sanctioned only after evaluating the borrower’s credit score, income, eligibility, existing debt, nature of income, and many other parameters. The borrower has to repay the loan in equal monthly installments (EMIs) every month, which contains both the principal and interest. This is done throughout a specific tenure with pre-agreed rates of interest (either fixed or floating). There are other charges payable by the borrower as well.
Loans are also available for purchasing commercial properties including offices, shops, retail stores, etc. Loans are also given for buying plots. People may sometimes take home construction loans to build their own homes upon plots owned by them. They may also apply for personal loans for taking care of home interiors, design, renovation, repair, and maintenance. However, personal loans are unsecured loans, i.e. not secured by any guarantee/collateral and have higher rates of interest. On the other hand, home loans are secured loans and are secured by collateral (the property which is being purchased). Their rates of interest are lower in comparison to personal loans.
