The Advantages and Disadvantages of bank loans.

Getting bank loans is something that we do one way or another. Over the course of time, all of us feel the need for instant funds to meet certain anticipation. It may be for buying a two-wheeler bike to a big commitment such as buying a house.

The advantages and disadvantages of bank loan

For decades, personal loans are the most common form of quick loan people usually rely on. Mainly because of its simplicity in processing for both the bank and the applicant.

There are many types of bank loans a person can get. Banks classify these loans for specific purposes. A personal loan is for personal ends meet, a business loan is for business purposes and for buying a house, there is a home loan.

The customers avail of the loan facility and enjoy the possession of goods in return they pay back the loan along with the accrued interest either in Equated Monthly Installments (EMI) or in lump-sum.

Loans such as Car loans, Home loans, Education loans, and Business loans are specified for specific purposes only. While Personal Loan is a loan for personal use. In a personal loan, you may use the funds whichever you like. Either for buying a car or using it for education purposes, a personal loan is something that is quite flexible. That is the reason why people love this loan.

Loans are great, they will serve your urgent need. That is for sure, but on the other hand, you have got to know that you are paying it back with interest to the bank. How much will it cost you, is a big question.

Let’s ing out about the advantages and disadvantages of each type of loan.

Personal Loan For Personal Ends Meet

There may be a variety of personal loans available in the market. The most common form of personal loan is a loan against salary. Banks offer this type of personal loan to a salaried person without any security.

Banks assess the applicant and see if lending is possible or not. Usually, they will have to run a background check on the applicant. These can be reviewing past credit history, verifying income sources and confirming your identification.

If you are eligible for it, the bank may proceed and give you the pre-approved sanction letter.

The tenure of these loans may go up to 6 years. Usually, that’s the maximum tenure banks offer to the applicant. Some banks may have 5-year maximum tenure too.

Here are the pros and cons of a personal loan. It’s better to understand before applying for it.

You may get instantly on the spot. You can get in online as well as offline by visiting the bank.Commitment to pay EMI which gives financial strain.
The eligible amount is as per your income.The penalty will impose on your account for EMI failure.
No collateral security is required. No Third Party Guarantor is required.A pre-payment penalty is there which is normally 2 to 3 percent of the prepaid amount.
Low-interest rates. The end use of funds is flexible. You can use it for various purposes.Penalty on Loan Foreclosure.
You can get it from any bank.The eligible criteria for a credit score are 600 and above. If you have had a bad debt in the past, your proposal may get rejected.

Loan Against Fixed Deposits and Securities

When you want to keep your funds intact and get loans from the bank, a loan against FD is the best. Availing of these types of loans is easy and hassle-free. As it’s a security back loan documents and requirements are minimal and instead of a loan agreement you may have to sign the demand promissory note- DP note.

A demand promissory note is executed when availing of a demand loan. Its a legally binding document between the parties ie, the bank (lender) and you. This type of agreement states that the borrower promises to pay the debt on demand by the lender. When a bank demands the borrower to pay up the debt, he must pay the debt or loan outstanding without fail to avoid legal implications. 

You may also get overdraft loans against Fixed deposits too. With an OD loan, you get the limit that has to revive and renew every year or every alternate year as per the terms of the lender. Here are some of the pros and cons of loans against FD.

Easy to get as it’s available online as well as offline. The interest rate is quite low as its 1 percent above the FD rate.Your FDs and security will be pledged as collateral security.
An overdraft account against an FD will have a low percentage of sanction limit. It may be between 70 to 80 per cent of the security value.An overdraft account against an FD will have a low percentage of sanction limit. It may be between 70 to 80 percent of the security value.
Flexible in paying the loan. You may opt for EMI as well as bullet payment.You will not be able to use your FDs as they will be marked lien by the bank.
The end use of funds is flexible. You may use it as you, please.Not all FDs and securities are eligible for the scheme. Minor cannot avail of the facility. 
You can get the loan as Demand Loan or Overdraft loan.Loan Tenure is 1 to 3 years, so you have to plan accordingly. Otherwise, your FDs may get liquidated toward loan payment.

Home Loans For Buying as well as For Construction of House

One of the most preferred loans in India. Not everyone has the capacity to buy or build their own house with self-funding. A maximum of the regular salaried employees get their homes with these forms of loans.

Banks usually have tie-up arrangements with builders to smoothen the loan process. Though, without tie-up arrangements too banks offer home loans. Especially, if you are buying a flat, banks prefer lending to parties with tei-up arrangements.

You may find a number of competitive banks offering a good product for getting a home. State Bank of India, ICICI, LIC, and HDFC are a few of the preferred banks and financial institutes when it comes to Home loans.

For buying a house, a home loan is the best option, it will let you own a home.Your house will be mortgaged till you repay the loan.
Flexible interest rate. You may get the option to choose between a fixed rate and a floating rate.Home loan insurance is costly and comes at a large premium.
The income of 3 family members can be clubbed to arrive at the desired loan amount.Margin Money for Home loans is high. it is in the range of 10 to 20 percent which comes in terms of lakhs.
Low EMI as the loan is for the long term.A long-term loan that goes beyond 10 years. Financial burden and strain are quite high.
You can get tax exemption on interest that you pay on Home Loan EMI.Documentation is cumbersome as it includes other legal papers besides your personal papers. Loan processing is lengthy as it involves multiple departments to clear things out. 

Car Loans To Buy Your Favourite Car

Owning a car is exciting. It becomes more intense when you get a job with a stable income. Be it a salaried person, farmer or businessman. Banks in India do offer the car loan facility to people from all walks of life.

Yes, it’s true that one needs to fulfil certain criteria to be able to get car loan facilities. These can be a good credit score, a stable source of income or having a good amount of funds in the bank. These are the basic criteria to be eligible for getting a loan.

When you buy a car with a bank loan, you are going to pay back on equated monthly instalment at the agreed interest rate. The interest rates are usually 7 to 9 per cent in Indian banks. For commercial purposes, the interest rate may be costly. It may even go up to 12 per cent per annum.

Some of the popular banks in India that offer competitive rates are SBI, ICICI, HDFC etc. But, you have to know that, any vehicle purchase with a bank loan will be hypothecated to the bank till you repay all the outstanding amount. When the loan is liquidated, you will have to transfer the ownership back to your name through RTO.

here are some of the pros and cons of a car loan

You get to possess a car.The vehicle is hypothecated to the bank. It means that though possession of the vehicle is with you, the owner of the vehicle is the bank that lends you a car loan.
At a reasonable rate of interest, you get offers from time to time, especially during festive seasons.Loan term commitment as loan tenor goes up to 7 years.
Eligible to salaried person, a businessman as well as a farmer.Obligation toward monthly EMI leads to financial strain.
Processing of loans does not take time. It can be done on the same day.Margin money or a down payment of 10 to 20 per cent of the vehicle cost has to be borne by you.
Minimal documents are usually required.

Business Loans For Business

Starting a business takes a lot of input. Mentally, physically and financially you have to devote yourself to getting the desired output. When you are ready mentally and physically, the source of initial funding can rely on business loans.

A number of business startup loans, as well as loans for business expansion, are available through most banks. For instance, PMMY-Prime Minister Mudra Yojana is one of the most successful business loans the financial institutes have been offering.

PMMY is for those business entities which fall under small and medium enterprises. Up to ₹10 lakhs can be availed under the scheme. One of the best selling points of these loans is that there is no security required for availing these loans.

If your business entity is large and you are expecting a credit facility beyond ₹10 lakhs, you may apply to any popular banks in India. You can check the eligibility and apply for a business loan on the contactless platform of SIDBI.

SIDBI says PSB loans at 59 minutes. Find out here.

Here are some of the pros and cons of business loans.

It enables you to kick-start your business to the next level. 1Capital infusion to the existing business firms is another thing, but getting a business loan for a startup is a big decision. As the outcome of your new business can go either way, it’s a big risk you going to take.
You may find many banks which are offering attractive business loans.Government-back schemes such as PMMY (Pradhan Mantri Mudra Yojana), PMEGP (Prime Minister Employment Generation Programme), etc are a good option to choose from as it is given at a subsidised rate.
Less processing time, so you can start concentrating on your business right away.Financial strain is a bit high as you are totally relying on the success of the business. If things go south, you may end up in debt.
Contact Less Platform is something very impressive for business loans. You can find your choice of the bank there and can get a sanction letter even before visiting the bank.Documentation is quite complex as it requires all your papers related to your business. You may be asked to provide documents such as your Income Tax Returns, GST filing, Balance sheets, and other legal papers.
Contact Less Platform is something very impressive for business loans. You can find your choice of bank there and can get a sanction letter even before visiting the bank.Repaying the loan may take longer. It may be hard for you to come out of loan repayment obligations.


Getting a bank loan is not a tough task. When you have a good source of income, banks will offer you a variety of loans. Financial institute earns their profits mainly on loans. Yes, of course, there are other means banks generate their income but loans given to the public are one of them.

When you are a working guy with a good salary and credit score, the bank will lend you funds in an instant. These days, they would even sanction you a personal loan without any requirement of papers. For instance, insta and pre-approved loans banks are offering to their clients. These online loans are without any papers.

It’s easy to get it, but you need to understand the underlying obligation that you are going to comply with in the years to come. Select wisely and get the benefits only when you are satisfied with the pros and cons of each type of loan you are applying for.

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