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What Are Loans, How They Work And Salient Characteristics

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We may or may only sometimes have the funds to perform certain tasks or conduct huge purchases. In such cases, people and businesses, firms, and various other financial institutions opt for the alternative to borrow a particular amount of money at flexible interest rates from lenders.

When a lender provides financial assistance to a person or an organization with a specific assurance by trusting that the receiver will repay the money promptly with extra benefits, like an interest rate, the procedure is called lending or taking out a loan.

A loan comprises few key elements – principal, the borrowed amount, the interest rate, and the term or duration of the loan.

Most of us borrow funds from a bank or a reliable non-banking financial institution or NBFC since they are bound to government regulations and policies and can thus be trusted. Lending is one of the main financial services any bank or NBFC offers.

Stated below are some of the salient features regarding loans:

  • A wide range of loan products and all loan app are available in the marketplace based on several elements.
  • You can easily select the loan category per your wish, preferences, and eligibility.
  • The lender will have the ultimate authority to determine the loan amount they opt to give you based on various factors like the ability and capacity to redeem the loan amount, income, etc.
  • A repayment duration and Rate of interest are associated with every single loan. You can pay EMI for the loan in a flexible manner.
  • The bank or any other financial institution might put various fees on each type of loan.
  • Many lenders also give out instant loans that take hardly a few minutes to around a few hours for disbursement.
  • The selected lender decides the interest rate per the Reserve Bank of India’s guidelines.
  • The lender is at his own will to decide on the requirement for security purposes.
  • A third-party assurance can be utilized rather than security in a few cases.
  • The loans are to be redeemed in the form of equated monthly installments gradually over a duration that will be pre-decided.
  • There may or may not be an alternative for paying the full or partial amount in advance.
  • Few loan categories and lenders might even levy a penalty for prepaying loans.

Apart from the pointers mentioned above, a credit score provides information about the past credit history of the borrower; the lender performs a detailed analysis of the repayment track record and then decides whether the borrower can make the repayments on time. In this way, the approval is at the lender’s discretion.

Also, the money saved by you and the effective implementation of those savings is drawn towards a down payment, which plays a huge role in increasing the lender’s trust in you. The greater the down payment, the lesser the loan amount needed.

To pay EMI online, a loan EMI Calculator comes to be extremely handy for estimating the total monthly amount to be paid to the lender along with interest. To evaluate the applicable EMI, all you need to do is put in the principal Amount, Time, and Rate of interest values.


Making a loan application is even more easier when using a loan calculator app or other platform than you think. But before applying for one, it is recommended that you are well aware of your present monetary condition since you will have to repay the loan amount at a future date.

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