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Banking > Basics > Loan Accounts > Commercial Lending > Retail Loans


Retail Loans

This type of lending is meant for very small entrepreneurs as well as individuals who are engaged in gainful commercial activity and have the capacity to repay the loan. Loans are given on the strength of the means of the borrower with an eye on the repaying capacity. The latter is judged through the cash streams (income) available with the borrower for repayment of the loan.

Loans for purchase of automobiles/consumer durable items
Most banks nowadays have a product for financing the purchase of automobiles and other consumer durable items. The quantum of loan is generally determined by the repayment capacity of the prospective borrower. This in turn, depends upon the monthly income. Most Banks have their own method to calculate the maximum monthly repayment capacity of a person. Thereafter, a loan for which Equated Monthly Instalment (EMI) is within this capacity is considered the outer limit for a person. The bank will be glad to finance to this extent for the purchase of an automobile or any other consumer durable item.

Most Banks judge the monthly income with reference to either the latest salary certificate from the employer ( in case of employees) or the last year's income tax return (in case of self employed persons). Other methods are also employed to appraise the maximum limit considered desirable for a person.

Tips:

  1. While considering a loan of such nature, check whether the interest is payable on the entire amount for the entire period or on the outstanding amount only. The latter is what you should look for even if the rate of interest is higher.
  2. Check the rests i.e. the frequency at which the interest will be debitted or charged to your account. Reject any frequency less than a quarter.
  3. Mostly there are hidden charges called service charges or appraiser charges which inflate the cost to you. Carefully check these before you venture forth
  4. You will be required to hypothecate/mortgage the goods bought out of the loan. So be prepared to sign a lot of documents
  5. Peruse the documents carefully so that there are no honorous clauses which tilt the balance heavily in favour of the Bank/ finance company.

 

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