Finance Loan Guide: Key Details You Need To Check Before Applying For A Loan

Personal loans have become an integral part of life today. They help people meet a range of financial needs, be it emergency expenses, starting a new venture, or a big-ticket purchase. The rapid growth of digital lending platforms in recent years have also helped borrowers to get easy and quick access to personal loans. However, the easy availability of loans and lack of due diligence while borrowing could push many lenders into debt traps.

Here’s a guide to help you make informed decisions if you're new to borrowing. So, let’s walk you through the basics of finance loans in India.

What Is A Finance Loan?

Money borrowed from a lender, usually a bank, non-banking financial company (NBFC), is known as a financing loan. You, as a borrower, agree to pay back the loan over a pre-determined time period with interest. There are usually two categories of loans — secured and unsecured. While unsecured loans are determined by your income and creditworthiness, secured loans are offered against mortgages of assets like gold or properties.

Understanding the type of loan that suits your needs is the first step toward becoming a responsible borrower.

If you're looking for a quick and simple way to get funds, the Moneycontrol platform could be worth exploring. You just need to fill in your information, complete KYC and set your EMI preferences. In partnership with eight trusted lenders, you can get loans up to Rs 50 lakhs without the hassle of paperwork or in-person visits. With interest rates starting at 10.5% per annum and no hidden fees, Moneycontrol provides access to most affordable loans.

Types Of Finance Loans Available In India

• Personal loans: These are unsecured loans and they come with higher interest rates compared to secured loans. Personal loans are approved based on a person’s income, credit score and repayment history.


• Home loans: Offered for buying , constructing or renovating a home, these are secured loans. Usually spanning 10 to 30 years, they come with lower interest rates due to the security provided by the property.


• Vehicle loans: These loans are specifically used to finance the purchase of two-wheelers or four-wheelers. The vehicle serves as the collateral.


• Education loans: These are meant for students pursuing higher education in India or abroad. These loans often include a moratorium period and flexible repayment options.


• Business loans: Offered to entrepreneurs or companies for starting or expanding a business, these loans can be secured or unsecured, depending on the size and need.


• Gold loans: These loans are offered against gold ornaments, usually with minimal documentation and are disbursed quickly.

ALSO READ: Gold Loan vs Personal Loan: Interest rates, eligibility, how to apply and other key details

Key Loan Terminologies You Should Know

Before applying, it’s important to understand common loan terms:

• Principal: The original loan amount borrowed.


• Interest rate: This is the cost of borrowing the money. It’s expressed as an annual percentage.


• Tenure: The duration of the loan repayment period.


• EMI (Equated Monthly Instalment): The monthly repayment amount that includes both principal and interest.


• Collateral: This is an asset the lender seeks as security for approving the loan.


• Credit score: A three-digit number, from 300 to 900, indicating your creditworthiness. A credit score above 750 is often preferred by lenders.

How To Choose The Right Loan

Selecting the right loan involves several factors:

• Purpose of the loan: Know exactly why you need the loan and choose accordingly.


• Compare interest rates: Compare rates across lenders. Over time, even a tiny difference might result in substantial savings.


• Consider processing fees and hidden charges: Always check the fine print.


• Repayment terms: Some loans offer prepayment or part-payment options.


• Credibility of the lender: Choose a lender with a good reputation and transparent practices.

Eligibility Criteria For Loans In India

Eligibility varies by loan type and lender, but generally includes:

• Age: 21 to 60 years


• Income: Stable monthly income


• Employment: Salaried or self-employed


• Credit score: Minimum 700 to 750 (depending on the loan)


• Documentation: PAN, Aadhaar, salary slips, ITR, address proof

Digital lenders may offer loans with more relaxed eligibility norms, especially for gig workers or new-to-credit applicants.

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Loan Application Process

Here’s a step-by-step outline of how to apply for a loan:

1. Check eligibility: Visit the lender’s website to understand the eligibility criteria.


2. Compare offers: Use loan comparison platforms to evaluate interest rates, fees and terms.


3. Apply online or offline: Submit the required documents and complete KYC verification.


4. Wait for the approval: Once approved, the loan amount is credited directly to your bank account.

You can apply for a personal loan of up to Rs 50 lakhs in a completely digital process through the Moneycontrol app. The interest rates start at as low as 10.5% per annum. Moneycontrol has partnered with eight lenders to offer these personal loans without the need for a manual application process or submission of documents.

Improving Your Chances Of Loan Approval

If you’re new to credit or have a low credit score, consider the following steps:

• Maintain a good repayment history on existing credit.


• Avoid applying for multiple loans simultaneously.


• Include a co-applicant with a better credit profile.


• Offer collateral, if possible, for secured loans.


• Choose NBFCs or digital lenders who may be more flexible.

Loans, when used responsibly, can be a powerful tool to meet life goals and improve financial stability. But, borrowing without understanding the terms or one’s own repayment capacity can lead to long-term debt traps. Borrow smart, repay responsibly, and always keep your financial goals in sight.