How to Select the Right Loan for Your Financial Needs 

right loan for financial needs

Making wise choices about loans is crucial for managing your money. Being the correct loan for your needs can be greatly aided by knowing the sorts of loans that are available, the eligibility requirements, the application procedure, and advice on being approved, whether you’re applying for a mortgage or a personal loan. We will walk you through all you need to know to make the best decision for your circumstances in this extensive guide.  

What are the Types of Loans? 

Loans are further classified as secured and unsecured loans.

Types of Secured Loans 

House Loans:

These are the secured loan types that borrowers most frequently get. As the name suggests, house loans are used by borrowers to buy or construct homes. Here, the house itself acts as security for the lender. The primary security is the home, but depending on the borrower’s history and the home’s worth, the lender might also require collateral security. This might be an asset, such as a fixed deposit. Long-term loans, lasting anywhere from ten to twenty-five years, are known as home loans. 

Gold Loans:

Collateral for gold loans is the gold owned by the borrowers. In this instance, gold acts as security for the lender, enabling the borrower to get money from them by pledging the gold to them. The lender retains ownership of the gold until the loan is paid back. A gold loan has an annual interest rate that starts at 7.50%. In these circumstances, the majority of lenders require their clients to pay only the interest on the principal amount each month. The principle can be repaid at any moment, and the borrower can take back ownership of the gold. Until the principal is paid back, interest on the outstanding balance must be paid every month. Moreover, gold loans may have an LTV of 90%. 

Loans secured by fixed deposits:

A fixed deposit can be helpful if you require a loan in addition to offering profits that are guaranteed. Depending on the lender, the loan amount could be between 70 and 90% of the FD’s value. The loan tenure cannot, it is crucial to remember, exceed the FD’s tenure. 

Types of Unsecured Loans 

Personal loan:

The personal loan is a popular unsecured lending option that offers instant liquidity at a higher interest rate than secured loans. Being able to get a personal loan with a competitive interest rate requires both having a high and steady income and keeping your credit score up to date. This flexible financial tool can be used for a variety of things, such as budgeting for a family wedding, paying for a trip abroad or vacation, funding home improvement projects, paying for a child’s college education, paying off multiple debts with a single loan, and handling unforeseen, urgent, or unplanned expenses.  

Quick Loans for Business:

In the corporate world, uncertainties might arise at any time. Businesses that are having trouble making ends meet may want to look into short-term business loans. These bank loans are intended to help businesses manage upcoming uncertainty and monetary challenges. The loan amount that can be disbursed is based on the borrower’s profile and the profitability of the business. The eligibility requirements are simple. 

Student Loans: 

The cost of schooling is rising quickly. In order to pursue a high-quality education, one must fork over thousands of rupees. Financial assistance is provided by an education loan in certain situations. Education loans have annual interest rates as low as 8.85%, and the cost of attendance determines the loan amount. Repayment of student loans usually starts 12 months after the program’s conclusion. 

Eligibility Criteria for Obtaining a Loan:

Here’s a table showing common eligibility criteria for obtaining a loan: 

Criterion Requirement 
Age 18 years or older 
Income Stable source of income 
Credit Score Minimum score (varies by lender) 
Debt-to-Income Ratio Usually below 43% 
Employment Steady employment history 
Citizenship/Residency Citizen or permanent resident 
Collateral Required for secured loans 
Down Payment Often required for large loans (e.g., mortgages) 
Bank Account Active checking or savings account 
Purpose of Loan Must be clearly stated and legal 

Application Process 

Research: Compare loan options, interest rates, and terms from different lenders. 

Documentation: Gather necessary documents like proof of income, identification, and financial statements. 

Prequalification: Get prequalified to understand how much you can borrow and at what rate. 

Application Submission: Complete the loan application accurately and submit it along with the required documents. 

Approval and Funding: Once approved, review the loan terms, sign the agreement, and receive the funds. 

Tips for Getting Approved 

Improve Your Credit Score: Reduce debt, pay your bills on time, and look for mistakes in your credit report to raise your credit score. 

Strengthen Your Financial Profile: Increase your income, reduce your debt-to-income ratio, and save for a down payment. 

Shop Around: To get the best conditions, compare loan offers from several lenders. 

Consider a Co-signer: If you have a low credit score or income, a Co-signer can help you qualify for a loan. 

Be Honest and Transparent: Provide accurate information on your application to avoid complications. 

Conclusion 

Choosing the right loan for your financial needs requires careful consideration of the types of loans available, eligibility criteria, the application process, and tips for approval. By following this guide and understanding the key factors involved, you can make an informed decision that aligns with your financial goals.  

Hariharan Ravichandran

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