Loans.

                                                                                         

Typically the kind of loans a bank generally issues is a secured loan and an unsecured loan. A secured loan is one in which a borrower provides an asset or document as security against the sum borrowed from the bank. This security/asset is held by the bank till the entire loan along with interest is repaid. The most common kind of loan that comes under this category is a mortgage loan. A Mortgage loan is a heavy loan that is provided to the customer for purchasing property against security, namely another property. This security is a possession of the bank till the complete debt is paid of. The debt can be paid of in easy installments. Failure to repay the debt will ensure that the bank acquires legal control of the property that has been kept as mortgage against the loan provided. Other kind of secured loans include auto loan that is used for purchasing automobiles such as cars, and stock hedge loans that is used for purchasing stocks and bonds and used for investing in stock markets.

An unsecured loan is a monetary loan that is used without any specific security to the borrower. These kinds of loans are issued against different marketing packages such as debit card, credit card and overdrafts depending on the lender and borrower. Banks that offers big loans to individuals for business or professional reasons are commercial banks and it is through loans issued that they make business. This kind of banking is also termed business banking. Commercial banking dominates most of the banking sector as they generate the maximum amount of profit by interest garnered through loans provided. These loans are generally huge in nature taken by individuals for their business and professional purposes and repaid in due course of time along with interest. Say if a loan of a crore is issued to an individual at 10% p.a, then the interest solely runs upto 10 lacs on a yearly basis and if the loan is repaid in the course of 10 years then the total interest garnered on the loan issued amounts to a crore which was the original amount loaned, hence the return is twice the amount loaned and hence the margin of profit.

Other types of popular loans provided by banks include back to back loans or parallel loans, parent loans for educational purposes, loans in process and portfolio loans. A parallel loan or back to back loan is taken when two companies from different countries borrow each others currency for a stipulated period of time in order to reduce foreign exchange risk. Parent loan for educational purposes is a non-need based consumer loans issued to parents to meet the educational cost of their children and doesn’t have a stated maximum amount. The repayment of the loan starts within two months of issue and the stipulated period to repay the loan is 10 years. Loans in process are loans that have been sanctioned of legally on paper and documents but are yet to be issued completely through statement via cheque or draft. Portfolio loans are loans held by banks as investments or assets for future profits. On a much bigger picture it is the loans that has brought upon proper financial regulation in India, hence making the value of the Indian Rupee much stronger against a foreign currency that dominates the financial market world wide.

About the author:
Commercial Banking Professional from one of India’s leading financial institutions. To read more about loans in detail click here.

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