History

Acquiring a home which you can proudly call as your "Own House" is a life-time decision. It requires a lot of research, planning about your exact necessities (your family matters a lot on coming up to a conclusion regarding necessities) and finally requires huge finances. Your home has to be a place where you can easily relax after coming from day's tiring schedule, a place where you can spend fruitful time and beautiful moments with your family.

What Is Home Loan?

Home Loan is a Secured loan offered against the security of a house/property which is funded by the bank's loan, the property could be a personal property or a commercial one. The Home Loan is a loan taken by a borrower from the bank issued against the property/security intended to be bought on the part by the borrower giving the banker a conditional ownership over the property i.e. if the borrower is failed to pay back the loan, the banker can retrieve the lent money by selling the property.

Types of Home Loans

There are different types of home loans available in the market to cater borrower's different needs.

   Home Purchase Loan:

This is the basic type of a home loan which has the purpose of purchasing a new house.

   Home Improvement Loan:

This type of home loan is for the renovation or repair of the home which is already bought.

   Home Extension Loan:

This type of loan serves the purpose when the borrower wants to extend or expand an existing home, like adding an extra room etc.

   Home Conversion Loan:

It is that loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home. The Conversion Home Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so the new loan pays the previous loan & fulfills the money required for new home.

   Bridge Loan:

This type of loan helps finance the new home of the borrower when he wants to sell the existing home, this is normally a short term loan to the borrower & helps during the interim period when he wants to sell the old home & want to buy a new one, It is given till the time a buyer is found for the old home.

   Home Construction Loan:

This type of loan taken when the borrower wants to construct a new home.

   Land Purchase Loan:

It is that loan which is taken to purchase a land for construction & investment purposes.

Loan Against Property

There are various types of loans that are available in the market; one of them is loan against property. Each of the loans has distinct conditions applicable to its operation. The best option for a borrower is to ensure that a loan, whether it is a home loan , personal loan or loan against property, is available easily, i.e., without much administrative efforts. One of the conditions that will help in easing the procedure and interest rate on a loan is the presence of a security on the loan.

A very strong and stable asset is property. One option that allows a person to make the best use of the assets available with him/her and at the same time also reduce the cost of borrowing is the loan against property. Loan against property is a very good borrowing option as there are several advantages of a property, which include possibility of appreciation in value, being in the nature of a fixed asset, income earning potential and so on. This allows the best use of the property that is owned and at the same time will enable the raising of funds required for various purposes like :

Capital requirement of business. For your child marriage. Sending your child for higher studies. Fund for medical treatment IN debt Consolidation.

One of the important factors that have to be present in a loan against property is the ownership of a property. There are a few conditions that are related to this ownership and one of them is that it should not be under any other mortgage. This is to ensure that there are no loans that are already outstanding against such a property and only then can there be a loan taken against the property.

What is the difference between a home loan and a loan against property?

There is a big difference between a home loan and a loan against property. Home loan is a loan that is taken for the purpose of buying a house. The bank or financial institution lends the money for the purchase of the house and the security available for the borrowing is the house itself. As against this, loan against property is a loan that can be used for any purpose. Though the security for the loan is a property the use can be anything and this is the major difference between the two loans.

Personal Loan

A personal Loan is a loan for your personal use, be it your child's wedding, a dream vacation, or a shopping extravaganza. A personal loan does not require any security or collateral and can be availed without much fuss. Typically personal loans range from Rs. 50,000 to Rs. 20 Lakh with a tenure typically ranging from one to five years. Getting a Personal loan is quite stress free and there are typically a number of offers in the market most of the time.

Apart from the rate of interest banks also charge some fees which are usually of two types. Once when you are applying for the loan and once when you are pre-closing the loan. The fees when charged at the time of processing called as Processing Fees vary from 2-3% of the loan amount. This could be reduced if you have the ability to bargain. the second charge is the prepayment penalty paid at the time of pre-closure. This too varies from 2 - 3 %. Similar to processing charges, you can also try to get this fees reduced.

Business Loan

A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest. There are a number of different types of business loan, suited to the requirements of different types of business such as bank loans, mezzanine financing, asset-based financing and invoice financing.

Types Of Business Loans

Secured and unsecured business loans

Business loans may be either secured or unsecured. With a secured loan, the borrower pledges an asset (such as plant, equipment, stock or vehicles) against the debt. If the debt is not repaid, the lender may claim the secured asset. Unsecured loans do not have collateral, though the lender will have a general claim on the borrower's assets if repayment is not made. Should the borrower become bankrupt, unsecured creditors will usually realise a smaller proportion of their claims than secured creditors. As a consequence, secured loans will generally attract a lower rate of interest.

Business Loan Eligibility Criteria

Business loan eligibility depends upon various factors which differ from bank to bank. The main factor of course, is your ability to repay the loan. Banks that offer business loans will run extensive checks on your business, profits, financial statements and scope of success. For example banks will assess your repayment capacity with the kind of organisation you have built.

For your benefit, we have put down some of the main things to take care of to ensure you are eligible for a business loan. Keep the following points in mind to ensure your application goes through.

Age

Age plays a role in the eligibility and repayment capacity of the individual. Banks generally give out business loans to self employed individuals/business owners that are typically between the ages of 24 to 65 years.

Stable and Sustainable Business

A stable business record goes a long way in improving your eligibility for a business loan. Individuals applying for the loan should have been running their business (the one for which you need a loan) for a minimum of 3 years. Apart from this, you should have been involved in managing stable businesses for a minimum of 5 years to increase your chances of securing a loan.

Financial Statements

Current and previous financial statements of your company are used by the bank to evaulate your repayment capacity. These are very crucial. Any kind of financial instability due to mismanagement is frowned upon and can reduce your chances of being eligible for a business loan. Clean and well maintained balance sheetsthat show financial stability and sensible transactions helps in improving your eligibility for a business loan.

Outstanding EMIs

Any pending EMIs at the time of applying for a business loan are likely to reduce your eligibility in terms of maximum amount or even loan disbursal. Since the amount is calculated on basis the EMI, you can possibly repay the contributions towards other outstanding loans to reduce the total business loan amount drastically.

Over Draft

An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money.
There are several important factors to consider when assessing the appropriateness of an overdraft as a source of funding for SME's:

The amount borrowed should not exceed the agreed limit ("facility"). The amount of the facility made available is a matter for negotiation with the bank;
Interest is charged on the amount overdrawn - at a rate that is above the Bank Base Rate. The bank may also charge an overdraft facility fee;
Overdrafts are generally meant to cover short-term financing requirements - they are not generally meant to provide a permanent source of finance
Depending on the size of the overdraft facility, the bank may require the SME to provide some security - for example by securing the overdraft against tangible fixed assets, or against personal guarantees provided by the directors.

The amount of an overdraft at any one time will depend on the cash flows of the business, the timing of receipts and payments, seasonal trends in the sales and so on. This can be illustrated using the data below. In the example cash flow statement given below, the SME generates a positive overall cash flow in a full year. However, due to the timing of sales receipts compared with supplier payments, the business needs to fund a temporary overdraft during the year:

If the business finds that an overdraft facility appears to be becoming a long-term feature of the business, the bank may suggest converting the overdraft into a medium-term loan.

Comparison of Bank Overdrafts and Bank Loans

The key advantages of overdrafts and loans in certain business situations

Advantages of an overdraft over a loan :
Customer only pays interest when overdrawn

Bank has flexibility to review and adjust the level of the overdraft facility, perhaps on a short-term basis. Overdraft can be effectively be used as a medium-term loan – the facility is simply renewed each time the bank comes to review it. Being part of short-term debt, the overdraft balance is not normally included in calculations of the business' financial gearing.

Advantages of a loan over an overdraft

Business and bank know precisely what the repayments of the loan will be and how much interest is payable and when. This makes cash flow planning more predictable
The loan is committed – the business does not have to worry about the loan being withdrawn whilst it complies with the terms of the loan.

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