Loans personal
A loan can be described largely as a monetary favor issued by a financial institution to the deserving individual or firm who has applied for the same in writing in a prescribed format. This loan carries with it a nominal rate of interest payable by the recipient on monthly basis to the issuing institution / bank. The loan document bears some terms and conditions to be followed by the loan applicant. All loan applications are to be countersigned by one / two guarantors.
Kinds of loans: Loans can be broadly divided into two kinds. One is loans issued to individuals and the other is loans issued to a firm or industry. Individual loan comprises of the following categories viz.
(1) Personal Loan
(2) Mortgage Loan
(3)
Jewel Loan
(4) Student / Educational Loan
(5) Housing Loan
(6) Vehicle
Loan and
(7) Credit Card Loan. An industrial loan is issued under the
heads like
(1) Building Loan
(2) Capital / Machinery Loan
(3) Loan on
finished products / Lock & Key loan (4) Bill discounting Loan and
(5)
Over-draft loan etc. etc.
Individual Loans:
[A] Personal Loans: This loan is issued based on the monthly net salary of an individual. To meet emergency expenses like festival expenses, marriage expenses, medical expenses of the family members one can approach the bank with his monthly income proof and apply for a personal loan. After making necessary oral verifications and in person this loan will be sanctioned depending on the monthly repaying capacity of the individual. This repayable amount is called as monthly installment. If the loan is payable in 10 installments then the principal and the total compound interest payable for 10 months will be added together and divided by 10 to make one installment.
The bank will send notification to the establishment where the loaner is working and ask them to make necessary deductions in the monthly salary of the loaner and send that amount which forms the monthly installment direct to the bank by cheque. The duration of the repayment will also be mentioned in the notification. The LIC authorities also follow the same procedure. Therefore, the loaner need not go to the bank every month to pay the installment. Once the loan is fully repaid, without involving any problem, then the loaners name gets into the good books of the bank and if he approaches the bank next time for a loan he will be sanctioned immediately without any hazard. Therefore, it is all in the hands of the loaner to avail future Loans. Suppose the loaner resigns his job without giving intimation to the bank, and then the bank will attach the guarantor to repay the loan. To avoid such miserable situations the loaner should come forward to take the responsibility.
[b] Mortgage loans & [c] Jewel loans: There are people who cannot produce income proof such as agriculturists, petty shopkeepers and the like. These people can obtain loan by mortgaging their property documents or the jewels at their disposal. These items stand as their solvency proof and make them eligible to obtain loans. These Loans are sanctioned depending on the worth of the mortgage after assessing the repaying capacity of the loaner. The installment procedure applies here also. Incase the loaner fails to repay the loan, and then the mortgaged property / jewel will be auctioned by the bank to settle the dues.
[c] Student / Educational loan: These loans are sanctioned to deserving students who are good at their studies. Professional courses like medical, engineering and computer technology need sumptuous cash payments to join and complete the course. One has to invest several hundred thousands of cash, even though the student has scored excellent percentage of marks and got admission into the course. Here the bank comes to help. The student can obtain proof from the college for the fee payable by him and produce the same in the bank in support of his claim for the loan. The bank considers such requests supported by the recommendations given by the college. Then the parents are called for a negotiation. The negotiation may be finalized on some terms and conditions. It may be like this. A certain percentage of the monthly installment will be payable by the parent over a period of years until the completion of the course. After that, the student should get employment to settle the dues from his salary on a long-term basis. There will be checks and controls by the bank over the career of the student.
[d] Housing loan: This loan is more or less the same as that of Mortgage loan. Here the document of the house is pledged with the bank. This loan is sanctioned after assessing the repaying capacity of the loaner. The government employees and the private concern employees are mostly considered for this type of loan
[e] Vehicle loan: Ones capacity to pay the monthly installment stands as a testimony to avail this loan. The procedure is also the same as that of availing personal loan.
[f] Credit Card loans: While the rest of the loans bring tangible cash to the loaner, credit card brings him not cash but kind. Credit cards are issued and their limit is fixed by the bank taking into consideration the monthly income / pay of the individuals. One need not bother for cash to buy any thing available in a shop, which accepts credit cards. The value of the purchase made will be treated as the loan given to the card holder. This amount will be paid by the concerned bank to the shopkeeper. The card- holder has to repay the amount along with interest to the bank on monthly basis. As the interest calculated in this system was felt heavy by the public, the credit cards are losing their fame.
Industial Loans:
Industrial Loans can be divided into long-term loans and short-term loans. Long term refers to a period of over five to ten years and short term refers to one month to six months. The long term loan usually consists of Building loans and Capital / Machinery loans whereas a short term loan comprises of Lock & key loan, Bill discounting loan, Overdraft loan etc. While sanctioning the Loans, limits for various categories of loans are also prescribed as a guideline to act.
[A] Building loan: These loans are given to industrialists who are interested in running an industry. A vacant site might have been purchased by an industrialist with the idea of building a factory. Such people can approach the banks with necessary proof for the ownership of land to obtain a building loan. The bank will study in detail the nature of the industry and its future profitability. Then the legal opinion will be sought after. If the findings are satisfactory, the loan will be sanctioned formulating the applicable terms and conditions.
[B] Capital / Machinery loans: These loans are issued to entrepreneurs who want to purchase machineries for their industry. The same procedure is followed by the bank as in that of building loan and if the industry proves to be a profitable one then this loan will be sanctioned depending on the solvency of the industrialist. The above two Loans may be called long term loans.
[C] Lock & Key loan: In an emergency, the industrialist can avail this loan limit by hypothecating a certain portion of the raw material or finished product. In this process, a certain portion of the raw material or finished product is kept in a room with in the premises. The bank authorities will come and verify the value of the materials kept inside referring the invoices. Then they will lock the room and seal it. Nearly 60 % of the value of the material kept in the room will be sanctioned to the industrialist. When this loan is repaid in full along with the interest, the door will be reopened by the bank people and the material inside will come to the possession of the industrialist. This is a short- term loan and there is a limit prescribed for this loan.
[D] Bill discounting loan: When a consignment of finished product is dispatched to parties in other states, we cannot expect immediate payment from them. To liquidate this blockage in payment Bill discounting loan is provided to the industrialist. In this process,
(1) the consignee copy of the dispatch made and
(2) the invoice copy are
deposited in the consignors bank. The consignor (industrialist) receives
the amount from the bank depending on the limit sanctioned in the loan.
The consignor bank sends these documents containing (1) and (2) above to their branch in consignees location. On intimation, the consignee pays the invoice amount in bank and clears the said document. He takes delivery of the goods by showing the consignee copy (which he got from the bank) to the transporter. Thus, the bank acts as a mediator between the industrialist and the purchaser.
[E] Overdraft loan: This loan is sanctioned by the bank depending on the creditability of the industry. If any payment is made by the bank over and above the limits of the loan, then it will be considered as overdraft. Sometimes a cheque issued by the industrialist might have come for collection in the bank. The bank will honor the cheque even though the industrialists account runs short of funds. This temporary adjustment made will be informed to the industrialist and he should arrange to bridge the gap and make his account worthy. Such a procedure is called overdraft facility. This overdraft is also for a short period of adjustment and any overdraft has to be settled within a weeks time.
Conclusion: The role of nationalized and private banks in the economy is commendable and needs appreciation. The financial wheel is kept on rotating by the banks thereby serving the public and the nation as a whole. Without banking, an economy
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