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October 21, 2016

Banking Awareness 2016 in Simple Language - Lesson 11

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Dear Gr8 Ambitionists, in our yesterday's Banking Awareness 2016 Lesson 10, we have learnt about Know Your Customer (KYC), Basic Banking Services and some important Banking Awareness points for upcoming IBPS Banking exams. In today's lesson, we shall learn about the Types of Loans. Happy Reading :) 

Banking Awareness : Types of Loans in India

Secured Loan
A secured loan is one where the borrower provides a certain property or asset as collateral against the loan. The main condition of these loans is that if the loan remains unpaid, the bank has the right to use the Collateral security.

Meaning of Collateral : valuable property owned by someone who wants to borrow money, that they agree will become the property of the bank who lends the money if the debt is not paid back



Unsecured Loan
Unsecured Loan has no collateral and therefore command higher interest rates. These include credit cards, credit facilities such as lines of credit, corporate bonds & Bank overdrafts.

Mortgage Loan
Mortgage loans that are provided by commercial banks are similar to secured loans but are used specifically to buy real estate property for commercial purposes. If customer fails to pay loan then bank has right to use the property in any way.

Home Loan
Home loans which can be helpful to you in buying a property. Home loans can be of many types :
  1. Loan for land purchase
  2. Loan for repairing and extension of your home 
  3. Loan for building a home 
Personal Loan
Personal Loans are meant to meet the personal needs of an individual. People can use this money for anything they want.

Vehicle Loan
Vehicle Loan or to be more specific car loans fulfills your dream of having a car or bike. This loan is a secured loan.

Education Loan
This loan provides better study opportunities for the students who are financially backward under priority sector study in India up to Rs. 10 lakhs and foreign upto Rs. 20 lakhs can be given.
Note : There is no need of Margin, collateral security and third party guarantee loan upto 4 lakhs.

Gold Loan
The easiest and fastest one to get loan is gold loan. Earlier when gold rates were increasing at an exponential rate, this loan was the most popular.

Agricultural Loan
There are different types of loans offered by banks for the farmers which can help them in their agriculture practices. They can buy seeds, insecticides, tractors and other equipment needed for agriculture.

KCC (Kisan Credit Card)
KCC started in 1998-99 by government of India, RBI, NABARD. It aims to provide adequate and timely short-term credit needs of farmers during the cropping season.
Eligibility : Individual
Repayment Period : Within a maximum of 12 months.
Collateral Security : Registered mortage of land in case loan is more than Rs. 100000 and hypothecation of crops to be raised.

KCC allows farmers to have cash credit facilities without going through time-consuming bank credit screening process repeatedly. Repayment can be rescheduled if there is a bad crop season and extensions are offered upto 4 years.

Insurance Under KCC
KCC holders are covered by a personal accident insurance. This cover is available when the person enters the scheme. The cover is as follows :
Death : 50,000
Disability : 25,000
Max. age to enter : 70 years

Loan against Insurance Policy
If you own an insurance policy you can apply for loan. The policies which have completed its 3 years are only eligible for loan.

Loan against Bank FDs
If you have a fixed deposit in bank you can also apply for loan against fixed deposit. The rate of interest you pay for this amount is a bit higher than the interest paid by the bank for the fixed deposit.

Overdraft
Overdraft is a procedure of requesting for loans from banks. This means the customers withdraws more money than he has deposited from any particular bank.

Cash Credit
Cash Credit is the payment done by the bank to the customers in advance. This facility allows the borrowers to borrow a certain amount of money from bank. Securities are provided by the borrower to the bank.

Loan against Shares and Mutual Funds
Most of the people also present their shares and mutual funds to the banks for having loan. The banks provide loans of amount lesser than the total amount in the share.

Reverse Mortgage Loan (RML)
Reverse mortgage loan enables a senior citizen i.e., above the age of 60 years to avail of periodical payments from a lender against the mortgage of his / her house while remaining the owner and occupying the house.

Bridge Loan
It is a type of short term loan, typically taken out for a period of 2 weeks to 3 years for pending the arrangement of larger or longer term financing.

Consumer Durable Loan
It is an installment loan to individual for a specified sum of money towards the purchase of consumer durable products. 

That's all for now friends. In our next lesson, we shall learn about another Banking Awareness topic, Priority Sector Lending. Happy Reading :)
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