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Everything you need to know
about loan agreements

All you need to know about Housing and vehicle loans basics


We may not always have the funds necessary to accomplish some tasks or purchase certain items. Individuals and businesses/firms/institutions resort to borrowing money from lenders in these scenarios.

When a lender lends money to an individual or corporation with the assurance of faith that the recipient would repay the borrowed funds with certain added benefits, such as an interest rate, the process is referred to as lending or borrowing.

A loan is composed of three components: the principal, or the amount borrowed, the rate of interest, and the tenure, or the period of the loan.

The majority of us prefer to borrow money from a bank or a reputable non-bank financing business. These institutions are bound by government laws and are regarded as trustworthy. Lending is a critical component of any bank's or NBFC's (Non-Bank Financial Company's) financial product offering.

Vehicle Loan

Automobile loans are used to finance the purchase of two- and four-wheeled automobiles. Additionally, the four-wheeled vehicle can be new or secondhand. The lender will pick the loan amount based on the vehicle's on-road price. You may need to save up for a down payment to obtain the automobile, as loans rarely provide 100 percent financing.

Home Loan

Home loans are used to finance the purchase of a house/flat, the construction of a house, the renovation/repair of an existing house, or the acquisition of a plot to construct a house/flats. In this instance, the lender will hold the property and transfer possession to the rightful owner following repayments.

Significant Factors Lenders Consider When Approving Your Application

  • Credit Report

    The credit score is critical in determining whether the lender will proceed with your application or reject it at the initial stage. This is especially true for unsecured loans. Because a credit score represents the borrower's credit history, the lender analyses the borrower's repayment history and determines whether the borrower can repay on time or default on payments. The lender's decision about loan approval is based on the results of the necessary analysis.
  • Employment and Income History

    Additionally, your monthly or annual income and employment history are critical factors in a loan acceptance. The lender may or may not be convinced that you will be able to repay the loan based on your income and income stability demonstrated by continuous and steady work history.
  • Debt-to-Income Ratio

    Not only is a healthy income necessary, but so is a healthy debt-to-income ratio. If your monthly income is less than Rs.1 lakh and your debt repayment obligations already exceed Rs.75,000, you will be denied a new loan since you will require the remaining income to meet your household costs.
  • Collateral

    The lender may determine the interest rate on your loan based on the collateral you offer and its current market worth. Collateral increases the lender's sense of security, resulting in increased trust and a lower interest rate. Unsecured loans are notorious for their higher interest rates.
  • Down Payment

    The money you've saved and the effectiveness with which you've implemented your down payment savings strategy will boost the lender's faith in you—the greater the down payment, the smaller the required loan amount.