A loan is an essential capital that is borrowed from a bank or any financial institution to get some financial support.
It is a financial arrangement between two parties like a bank or financial institution lending money to the other party usually to support their financial instability or start a business whatever may the reason be and the other party is asked to return the borrowed amount in a fixed period with some interest added. There are different types of loans like financing a business, education loans, and many more. The loan borrowed is supposed to be repaid in the given time depending on the type of loan. The loans borrowed are repaid normally every month or bi-weekly basis which includes both principal and interest.
What are the different types of loans and their eligibility criteria?
There are different types of loans available in India. Some of them are listed below along with the eligibility criteria to apply for the loan.
1. Personal loan – these types of loans are mainly given by banks, credit unions, and online lenders. They are unsecured loans and are usually borrowed for purposes like debt consolidation, medical bills, home renovation, funding weddings, or some other unexpected financial support.
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Eligibility
(I) the credit score of the borrower should be over 650 or above to get approved for the loans. Some lenders provide loans to borrowers with low credit scores but that will come along with high interest rates.
(ii) the borrower should have a better and stable employment status to get approved. Self-employed borrowers are required to present extra documentation like their tax returns to get personal loans.
(iii) the borrower is required to be 18 or above to apply for the personal loan and should have a permanent residency.
2. Home loans or mortgages – these are the secured loans that are used to purchase a property that acts as collateral. This loan helps in funding home improvements.
Eligibility
(I) these loan requires a credit score of up to 620 or above for approval.
(ii) these loan requires burrowers with stable income and ask for proof of their employment to make sure whatever said is true. The applicant should have two continuous job experiences in the same field.
(iii) a down payment is required in this loan that may range from 3% to 20% of the price that which the home is purchased.
3. Auto loans- these loans are secured loans that are used for purchasing vehicles and the vehicle itself should serve as collateral. These roles can finance different types of vehicles which may include cars or bikes.
Eligibility
(I) this loan requires a credit score that should be 660 or above which will help in securing low interest. The applicant will a low credit score can apply to a finance institute that may provide an auto loan with a low credit score but with a high interest rate.
(ii) these loans require stable income and proof of employment to make sure that the applicant can repay the loan.
(iii) the loan term of an auto loan is usually from 36 to 72 months.
4. Student loans- these loans are provided to students or their families to support their higher education financially. These loans can be federal or private depending on what the applicant chooses. These loans mainly cover tuition fees, staying, and any other education-related fees.
Eligibility
(I) the federal loan depends on the financial requirement of the student whereas in private loans the credit score is viewed and is made sure it is up to 670 and above.
(II) in private student loans, proof of income is required. The federal student loan offers loans to U.S citizens or eligible non-citizen proof is required.
(III) the applicant must apply on The official site of the FAFSA (Free application for federal student aid).
5. Business loan- these loans are provided to the business operations and the start-up business. These loans can be either secured or unsecured depending on the type of loan and the lender. They mainly help businesses for different purposes like expanding operations or hiring staff and many more.
Eligibility
(I) the credit score for this loan to be approved should be 680 or above.
(II) these loans require the business that has been running for two years. And the business plan along with the profitability and viability of the start-up is discussed before the approval.
(III) and the business that has been running for the last two years should show its revenue and profitability to apply for this loan.
(IV) Payday loans – these are the types of loans in which loans are provided for short term and with high interest rates. This is mainly taken in case of any emergency. And the repayment is done quickly after the next paycheck of the borrower.
Eligibility
(I) these loans require proof of steady income for approval as the repayment is done on the next paycheck of the borrower.
(II) the age of borrower should be 18 or above to be eligible for this loan.
(III) proof of permanent residency and citizenship is required for the approval.
Therefore before applying for any loan one should make sure to learn and understand the eligibility of the loans. And make a proper plan for repayment of the loan. Evaluate the total financial situation before applying for any loan.
