In this complete guide, you will get to know the answers to pressing questions about loans fundamentals. Below is the list of topics cleared.

1. Explanation on Loan, Lender and Borrower.
2. Different Types of Financial Institutions
3. How is loan evaluated by financial institutions
4. End to End Loan  Process Flow.
5. Terminologies involved in loan terminologies.
6.  What are the different types of loan categories?
7.  Different types of Loans in the Market?
8.  Different Loan Types facilitatedd or Not Facilitated in Loanwiser
9. How Financial Institution categories applicants & what products offers to them?
10. What is the Credit Score & Credit Report?
11. What are the Professional Proof required to avail the loan for Salaried/Self-employed?

Lender, Loan and Borrower

People borrow money either to purchase bike, cars, homes or to meet personal expenses/business expenses/business expansions. This borrowed money is termed as a 'Loan'

A Bank/NBFC which gives loan to the customer is called as a 'Lender'.

Eventually, a customer who takes loan from the Lending bank is called as the "Borrower".

Different Types of Financial Institutions


The story of financial institutions start with Central Bank (RBI) then there are three types of banking entities. These are - Commercial Banks, NBFC's and Term Financial Institutions.

In Commercial Banks, we have public sector, private sector, Foreign, Co-operative and Regular rural banks.

Public sector banks include banks like SBI, PNB, BOB etc. Private sector banks include ICICI, AXIS and HDFC.

Foreign banks include HSBC, CITI etc.

There are 3 types of Co-operative banks. These are State/Govt., Private and Primary Credit Societies.

Then there are two types of term financial institutions i.e. state finance Corporations and Indian financial Institutions. IFCI, NABARD and Small Industrial Development Bank of India (SIDBI) are the 3 Indian Financial Institutions.

How A Loan Gets Evaluated By Financial Institutions?


Loans are evaluated on the basis of Character, Capital, Collateral and Capacity to Repay.

The financial history of the borrower refers to the financial character of the individual/business. A simple question to qualify or disqualify you by the banking entities is - What kind of a 'financial citizen' is this person or business is?

The factors that affect the financial character (Credit Score) include -
1. Late payments
2. Delinquent accounts.
3. Total Debt.

A high personal credit score (over 700) may be the most important factor in getting all types of loans.

The next 'C' is Capital. It refers to the Capital assets of the business. Your own contribution while purchasing the products. 

Capital assets might include machinery and equipment for a manufacturing company, as well as product inventory, or store or restaurant fixtures.

Banks consider capital, but with some hesitation, because if your business folds, they are left with assets that have depreciated and they must find someplace to sell these assets at liquidation value.

The third 'C' of Loan fundamentals is 'Collateral'. It is an asset that a borrower pledges to secure a loan.

You need to have a good credit, a proven ability to make money, and business assets, banks will often require an Borrower to pledge his or her own personal assets as security for the loan.

Banks require collateral (Girvi) because they want the Borrower to suffer if the business fails.

If a borrower didn't have to put up any personal assets, he or she might just walk away from the business failure and the bank can take what it can from the assets.

Having collateral at risk makes the borrower more likely to work to keep the business going, as banks reason it.

The last C is 'Capacity to Repay'. Capacity refers to the ability of the business to generate revenues in order to pay back the loan.

In other words, capacity measures a borrower's ability to repay a loan by comparing income against recurring debts.

Now, a new business has "track record" as such to be considered. Hence, giving a loan to one is riskiest for a bank.

8 Steps of Loan Process Flow

1. Customer enquiry about the Loan.
2. Application given to banks for Loan.
3. Credit analysis based on the customer profile.
4. Loan Approval/Try Later occurs.
5. Loan Documentation>
6  Loan Disbursement
7  Loan Amount Credited to Customer Bank A/c
8. Loan Repayments to Bank : There are 3 loan repayment modes. These are Auto Debit, Physical Process and Online Process.

13 Important Words of Loan Terminology of Lending

1. Down Payment : It is the advance payment by the Customer in cash.

2. Interest Rate : The money charged by the lender on the loan amount from the borrower.

3. Processing Fees : Fee to be charged for processing the loan of the customer through Loanwiser.

4. Monthly Payment/Installment (EMI) : The amount to be paid every month by the customer to repay the loan.

5. Term/Tenure : Total number of months in which the customer pays the loan.

6. Principal Amount/Credit Amount : Loan amount to be given to the customer by home credit.

7. Due Date : Monthly payment deposit date.

8. Late Payment Charges : If the customer fails to deposit on or before the due date then the customer have to pay a penalty (extra amount) for late payment.

9. Loan Repayment : Amount to be paid on monthly basis by the customer to repay the loan. This amount is paid for a fixed term.

10. Repayment Channel - NACH/Online/Cash : The mode of repaying loan in which monthly payment is directly deducted from the customer's bank account called NACH, Customer can also choose to pay online, cash - physical visit & pay.

11. Early Repayment (Foreclosure) - Many a times, funds are available with the customer, the customer wants to repay his total loan before the due date(s).

12. Disbursement : Requiredd loan amount approved by the banking entity/NBFC and credited to customers bank account.

13. App ID : App ID is the Loan Application Number.


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