When Should we use which loan? Can we get multiple loans?
When it comes to loans, there are many options available. There are so many choices to choose from but, is there a right loan for every situation? Is it? In this article, we will go through various loans, and when should we take which loan. What are the benefits of using the loan which is described for a particular purpose? There are many things that I am going to cover in this article. So, get yourself ready to brainstorm some new Loan ideas.
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Along with this, we will also go through what are the different types of loans we can get and how many loans can we get at a time.
Types of Loans -
Secured Loans – Secured Loans are loans that require security or collateral. In these types of loans, the bank can ask for collateral in exchange for a large sum of loans. These loans have less interest rate than unsecured loans. Also, these loans are secured as a dispute in payments or failure of repayment of the loan, the bank can sell the assets that were given as collateral to fulfill the actual pending amount.
Examples of secured loans are – Business loans, car loans, home loans, etc.
Unsecured Loans – Unsecured loans are loans that do not require any security or collateral. In these types of loans, the lender trusts the worthiness of the borrower rather than security. These loans are risky for lenders, as they are trusting the worthiness of the borrower and, so it requires a high CIBIL score, also known as Credit score.
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Examples of Unsecured loans are – Credit cards, personal loans, student loans, etc.
So without any further due, let us start with the first thing Different loans in the market.
Different types of loans –
Student loan – Used to pursue your education. These types of loans are not paid immediately. This is generally used to complete higher education, and being a full-time college student, the repayment of loans starts when you start earning. The interest rate on these loans is reasonable, and the repayment can be done within the next 15 years along with a year of repayment holiday.
The amount given as a lumpsum mostly consist of tuition fee, and the overall amount can vary from different to different banks.
Car loan – A simple transaction in which you borrow money from a bank to pay the dealer. A lump sum of the approved amount is credited to your bank account, and you can pay the dealer in full to buy your dream car. In return, the bank gets the documents of the car so that if anything goes wrong, they can use the vehicle to pay off the outstanding balance. Generally, this type of loan is only used for buying any vehicle, as the original documents are submitted to the bank.
It starts from around a 7.00% interest rate and the return period of the principal along with the interest amount is capped up to 8 years. EMI’s can be made according to the borrower's ease.
Personal loan – It is a type of loan which is provided by all the banks and this loan can be spent on anything. This loan mostly does not come with a condition of usage. For example, a personal loan can be used to go on a trip, buy a new laptop or a smartphone, etc.
This loan is more suitable if you need money quickly, as it is easy approval based on your credit score and as it comes under unsecured loans, this does not need any collateral and money can be transferred as quickly as in 10 minutes.
Mortgage loans – These are huge money loans. These types of loans come under secured loans, and as we know, these would require collateral or security.
This type of loan is best suited when you are buying real estate. Mortgage loan does not have restrictions on loan amount usage. This loan is separate from the home loan as a home loan is particularly used for construction or, buying of a house.
This type of loan has a higher interest rate than home loans. So it is best to use if it is being used for commercial use and can be paid up to 15 years.
These are some of the loans from a vast number of loans. But these are some of the most important that people take. There are several small loans also which can be used for day-to-day purposes.
So now let us see the benefits of each loan over the other.
Each loan should be used for which it is taken, as it gives you a good tenure to return, reasonable interest rates, and collateral security. Whereas personal loans can be used for any purpose. If you are in urgent need then, it is good to go for a personal loan.
Can we get Multiple Loans?
Yes, for sure you can get multiple loans. To get another loan you still have to get approved first. All the documents will be required again, you will have to have a good credit score. Your job status and salary will be checked again. This is done to check if the borrower can repay the amount or not.
Before going for another loan, make sure your income to debt ratio is okay. Generally, a second loan is taken to pay off the first loan but make sure you read the documents carefully as some banks do not allow you to do so. A personal loan can be used to pay off the debts without any obligations.
Conclusion –
So, as we have come to an end of this article, I would like to shine some light on new points. While taking a loan, make sure you understand all the terms and conditions. To avoid any surprises, you can ask for a financial advisor or a charted accountant who can make you understand every single point.