Loans in India

 

Loans

Loan is an amount of money that you borrow from a Bank, financial institution or any relative and you return the money with interest.

Here the people have to pay interest per month apart from its principal. In this Post , We will describe terms, types and nature of Loans in India.

 

Ancient History

Long ago, the Modern Banking and Loan system was designed by our Ancient Guru. The literature about loan is often called Debt which  is found in  Manusmriti , Bhagavad Geeta  and Kautilya’s Arthashastra. 

The usury has been described in our Hindu text “The Sacred Laws of the Aryas”.For eg: Rishi Vashistha prohibits the higher castes of Brahmnas (Priest) and Kshatriya (warriors) from being usurers.

Kautilya is the most prominent  Political Economist  during the Mauryan Empire. He covers detailed references on creditors, lenders, lending rates and the existence of professional banking in India.

In the Mauryan period, there is a term called “Adesha” for the financial instrument. Rate of Interest is described in “Arthashastra” for different types of borrowers.

 

Pre-Independence

The first bank to crop up was the Union Bank of Calcutta during the British rule. Similarly, Allahabad Bank was established in 1865 and is still functioning. We saw the establishment of banks inspired by Swadeshi movement between 1906 and 1911.

Some of the banks during that period are The South Indian Bank, Bank of India, Corporation Bank, Bank of Baroda, Canara Bank and Central Bank of India.

 

Post-Independence

Some major changes were done in the economic affairs of the country after independence. Thus, the Reserve Bank of India  and The Banking Regulation Act 1949 was introduced which empowered the RBI to regulate and control Indian Banks. All the interest rate of the loan given by the Bank is regulated by the Bank.

During the 1990s, when India opened up the Market for Global Outreach, several other banks like ICICI Bank, HDFC Bank and IndusInd were established. With the Introduction of  FDI and Modern Technologies, now a person can take money (Loan) and transact in any parts of India.

 

Terms used in Loan

Loan is basically described by the terms.

Down-payment

This is also called Deposit. The down-payment is an amount of money that a person has to pay as the first contribution towards clearing the debt. It is basically a percentage of the total loan amount.

Installment

A monthly amount of money which is paid.

Interest

Surcharge  apart from the loan amount that is principal. The interest varies from loan to loan and from lender to lender.

 

 

Loans

 

Types of Loan

The loan is divided into two parts

• Secured Loans

• Unsecured Loans

Secured Loans

• As the name suggests, it is secured because the loan amount is given in terms of any guarantee of any asset as a collateral: e.g., Home Loan, Loan Against Property, Gold Loan, Car Loan etc.
• The interest rate is low.
• If a person is unable to pay the loan, then the bank sells the asset to recover the loan amount.

Unsecured Loans

• Here the loan is unsecured as there is no guarantee that the person can deposit the loan amount. Many times, the Bank has written off the major loan amount. Eg: Personal Loan, Education Loan, Credit card debt, 
• The Interest Rate is high.

 

Some of the loans that are taken by people are.

Home Loan

• It is the most common loan in India and is secured in Nature.
• The Loan is  given to purchase homes.
• Basically, Home Loan is given between (75-85%  mostly) of the property amount.
• Home Loan is available either in fixed interest or variable interest. It is always good to go with a variable interest.
• It  gives you a Tax Benefit.
• Interest Rate is between 9-11%
• Here the Bank will take home if the loan is not covered.

Top up Home Loan

• This loan is taken when you have to renovate your home. An additional loan above the home loan.
• Interest rate is 12%
• You will get the money on this loan, which is 70% of the existing home loan.

Education Loan

• As the name suggests, this loan is given to a student who is going for higher education.
• It comes under an Unsecured Loan
• Loan is available for Indian and Foreign Universities.
• We can have tax benefits under Section 80E.
• The interest rate is between 11-14.5%

Vehicle Loan

• This Loan is taken if a person wants to purchase a car or any vehicle.
• For this loan, you have to submit income proof.
• The interest rate is taken between 9.6-10.6%
• You will get the Loan amount up to 90% of the vehicle price.

 Personal Loan

• This loan is given by the Bank or any financial institution without any guarantee and is given to a person depending on your credit score.
• It is an unsecured Loan.
• The interest rate is high between 15-25%

Loan against Property

• You will get a loan by depositing property documents as a guarantee. If you are unable to deposit the loan, the bank will take your property.
• You will get 60-70% loan amount.
• Interest rate is 11-15%

 Gold Loan

• You will have to submit Gold or deposit the Bond document to get a Gold Loan.
• It does not require any documents.
• Interest rate: 12-13%
• You will get 75% of the value of Gold.

 Business Loan

• It is taken to start or run a business
• Interest rate: 12-15%
• The price varies depending upon the requirement.

Rural Loans

• It is given to farmers to meet their agriculture and production expenses.
• Interest rate: 13-16%

Other Loans that are taken by an individual are Cash Against Invoice, Overdraft, Loan from an unorganized structure,  Loan Against Life Insurance, Loan against Fixed Deposit etc. However, you can also negotiate interest rates by the Bank.

 

Conclusion

Today, we have different types of loans for various necessities, and we can avail it and purchase luxury or necessary items. We s have to  be very careful on taking loan as sometimes we have a high percentage of EMI on our salary which causes stress in our life.