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.
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.
- 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
- 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
- Mostly there are hidden charges called service charges
or appraiser charges which inflate the cost to you. Carefully check these before you
- You will be required to hypothecate/mortgage the goods
bought out of the loan. So be prepared to sign a lot of documents
- Peruse the documents carefully so that there are no
honorous clauses which tilt the balance heavily in favour of the Bank/ finance company.