Loans companies
Loan in general terms connotes the borrowings made by an individual through the financial institutions such as banks, co-operative societies, companies or even through individual money lenders. Whenever any amount is borrowed from this source, it is usually repaid with the accrued amount of interest unlike the other debt instruments such as the bill of exchange, promissory note or hundis. According to the web definition it means “temporary provision of money".
Due to the growing necessities today the purchase of loan has become a very common activity. Adam Smith, the father of economics had stated in his theory of human needs as “the natural resources are limited but the human wants are unlimited". He has classified the human wants into three main spheres i.e. a) Basic needs b)Needs for comforts c) Luxurious needs. Therefore an individual attempts to exploit the natural resources to satisfy his needs but if he fails to amass them, he then tries to accumulate it through borrowings.
He mainly adapts to borrowing of loan because it fulfils the three types of desires 1) Basic 2) comfort 3) luxury.
Features of loan: Loan is basically a kind of liability to the organization and a debt to an individual. It does not substantially constitute towards the brighter prospects of the business and therefore deteriorates the goodwill of the business. One should reasonably adhere to this facility because one must not be debt trapped in the future.
Today there are various loan companies that are established today to finance for various purposes.
Before appraising loan to the applicants, the company entails to a few formalities as mentioned below.
• Documents like the income or salary statement, bank statement, Form 16 for salaried individuals, tax returns along with the statements of balance sheets for self-employed are examined. Other slips such as ration card, PAN card, driving license card, voter’s identity card are also verified to know the credit-worthiness of the applicant.
• Besides, they must be confirmed that the applicant is not a fraudulent person who was involved in the forgery in the past. The banks conduct these examinations through external agencies.
• To comply with the formalities they collect various fees for processing the application like documentation and administration charges.
• The documents are then scrutinized to analyze whether the loans should be appraised or not.
• If the status of the documents is found to be suitable as per the norms and policies, the cheque is then disbursed to the person and the amount is transferred to the account.
Before applying for a loan you need to know about the details of the loan product regarding the few issues: The terms and conditions must suit your normal earning capacity and your cash balance.
Therefore it would be practical to consider these points.
• Monthly repayment
• Typical APR(Annual Percentage Rate)
• Total repayable.
• Early settlement charges.
The loan companies provide namely two types of loans namely
1) Secured loan
2) Unsecured loans.
The unsecured loans are also known as the personal loan that allows you to borrow a sum of money without providing a means of security such as house, car against the loan. But the lenders here decide whether to appraise you or not by verifying your credit history.
The secured loan in the U.K. is popularly known as Homeowners loan that demands a form of security by the user in order to balance their chances of risks. If you purchase secured loan then doccumentry inspection may be conducted regarding your property and certain enquiry will be carried out to know the reliability of the product. The lenders will expect from you appropriate insurance policies attached to it and a statement of cash flow to exhibit the ability of repay the loan principle along with the rate of interest over the term of the repayment schedule.
There are a few factors to be considered before choosing the type of loan you want to borrow as the following:
• The interest charged on the loan
• Cost of Payment Protection Insurance.
• Early repayment charges or penalties.
• Personal circumstances that would affect your ability
to pay.
There are two main categories of loans namely
1) demand loan
2) Term loans.
The concept of 'demand loan' is used in different senses. It is the kind of loan that is repayable as soon as the creditor demands it as it is short-term in nature. These finances fulfill the day-to-day operations of the business including the wage payments and supplies. When it is used for financing the account receivables contract, interim loans are provided known as the bridge financing. It becomes necessary if the debtors delay the repayment for about two or three months, then there occurs a desperate need for finance to perform the routine operations of the entity. On occasions inventories may be temporally used as a security but bridge finance provides personal guarantee compared to the use of inventory. As the conditions of security provisions are weaker the rate of interest is highly charged.
The term loans are the loans sanctioned for a period exceeding one year and the schedule of repayment is specified. It includes installment credit where the repayment schedule is spread for more than a period. The term loans are mostly advanced for the purchase of the fixed assets i.e. for the long-term plans of the business. About 65% of the loan is secured by a physical asset that is newly purchased and the remaining 35% of the loan is obtained by the other unencumbered assets. This type of loan is arranged when the estimated useful life of the asset that is retained by the lender exceeds one year.
Lenders or loan companies customary favor the type of business that comprise of a strong management system, steady growth potential and a regular cash flow. In case of an individual they expect a strong credit history.
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