A loan refers to money that has been borrowed for a specific purpose from a financial institution like a bank or any other lender that must be repaid at the end of a set time frame.
Banks usually offer different types of loans for different needs of borrowers. Loans can be taken out for many reasons like financing higher studies, starting a new business venture, or buying a house, cars or other such amenities. Few of the specific reasons for which people take a loan have been discussed below:
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To meet day to day and basic needs
In today's environment each and every individual is facing cash crisis due to rising expense. The situation has occurred because the income level is stagnant while cost of living has gone up many folds. This situation has created a gap between income and expense and therefore the common experience of cash shortage.
In this situation, at time people need cash to meet even the day to day and basic needs. These needs include buying groceries, paying mobile and electricity expenses, buying household items, repairing of automobile and so on.
To meet medical emergency
Today nobody knows how and when a medical emergency will occur. If any such unfortunate incident occurs, the one thing that becomes the most important to get proper care is to have sufficient amount of cash. Therefore borrowing loans to meet medical emergency is the most common reason for people.
For debt consolidation
Since today everybody is facing the pinch of an unpredictable economy, people resort to borrowing multiple loans to meet their various needs. However managing the repayment of multiple loans becomes a difficult task for most of the people. Therefore today people borrow a fresh loan of higher amount to consolidate many small loans. Debt consolidation means an arrangement in which you accumulate all debts into one and make only one repayment instead of several repayments.
To meet cosmetic surgical needs
This is one area which has seen tremendous growth over the last few years. Today's competitive environment requires that you are not only to be physically fit but also your appearance must be perfect. Even a minor scar on the face creates inferiority complex among the youth. Similarly a broken tooth reduces the confidence level.
Therefore to look good and feel confident, people opt for cosmetic surgery loans.
Loans for business needs
Meeting business needs is again one of the most common reasons for which people borrow loans. Today not only established business people choose to borrow money to meet their short term needs but also those who have just started their business opt for loans to meet their diverse needs.
Having discussed the reasons behind borrowing money, you should also know the various components of loans.
Components of a loan
There are three major parts of any type of loan: a principal, which is the amount of money borrowed, the time of repayment, by which the borrower must repay the money, and the rate of interest. The rate of interest is an amount additional to the principal that must be repaid by the borrower. You can consider it as a sort of fee charged by the loan provider for their services. When the rate of interest is low, the amount to be repaid is closer to the amount borrowed, making it easier to return the money.
Providing loan facilities is one of the primary tasks of financial institutions, and rates of interest are generally kept low enough to attract customers while still allowing viable and profitable trade-off for the establishments.
Another important aspect that you must be aware of is the responsibility of the borrower. Please find below the rights and duties of borrowers:
Rights and Duty of the borrower
While taking a loan, one must be careful to avoid unauthorized lenders that put the borrower in a compromising position, or ask for high interest that make repayment difficult. At the same time, as a borrower it is your duty to provide correct financial information and repay loans on time.
To conclude, today people borrow loans for many diverse reasons that range from personal needs to business requirements. However when you borrow loans, you must be aware of your rights and duties. One of the most important duties is to repay the loan as per repayment schedule.
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