Consumer vs Commercial Loans
CONSUMER LOANS VS COMMERCIAL LOANS Prepared By:| | | | Rohit Iyer| 11FN-082| Sahil Gupta| 11IB-069| Consumer Loans * Consumer loans are those loans which are required by a person for their personal needs. * If a car loan(finance or lease) is obtained by a company/individual for commercial purposes it is a commercial finance where as if the same kind of car loan is availed by a an individual who would use that car for his personal needs and would not gonna earn rent from that car that is considered a consumer loan.
Hence, we can say that consumer loans would not become a source of earning for the borrower, * Examples:- Credit Cards, Personal Finance, Car Finance, Mortgage Finance Features of a personal loan * Variable interest rate: – A Variable Interest Rate Personal Loan has an interest rate that may change during the loan term.
Accordingly your personal loan repayment may change throughout the life of the loan. With Variable Interest Rate Personal Loans you can make early or additional repayments without incurring any penalties. Fixed interest rate: – A Fixed Interest Rate Personal Loan has an interest rate that stays the same for the full loan term. The loan repayment should not change due to interest rate changes throughout the full term of the loan. With a Fixed Interest Rate Personal Loan you cannot pay extra to get ahead in your repayments. The repayment amount specified in your loan contract needs to be paid each week, fortnight or month as per the arrangement until the loan is paid in full. If additional payments are made, charges may be incurred. Secured: – A secured personal loan is a loan in which the borrower pledges an asset eg a car or property as collateral for the loan. The debt is then secured against the collateral so in the event that the borrower defaults the lender can take possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower. * Unsecured: – An unsecured personal loan requires no collateral or security. This type of loan is supported only by the borrower’s creditworthiness, rather than an item of collateral. Advantages: Personal loans do not require you to produce any collateral or security, like other loans. * There is no agent or middleman while obtaining this loan. * Banks are always ready to offer personal loans. * All that is required is that you need to satisfy the eligibility criteria. * You may use the loan for educational or even holiday purposes. * You can avail a personal loan during times of emergency when you are short of cash, since you need not answer too many questions to the bank. * You may avail personal loans according to your eligibility ranging anywhere from Rs. 5,000 to Rs. 10,00,000. * It is better to avail a personal loan than to borrow cash on your credit card comparing the interest rate on both. Disadvantages: * The eligibility criteria are stricter in case of personal loans, since there is no security required and the paper work is minimum. * The bank checks on you capability to repay more than any other loan due to the same reason. * Since the bank has a higher risk while providing personal loans, they follow a list of approved categories of borrowers. Interest rates for personal loans could range from 12 % to 30 %, while the service charges and prepayment penalty are also very high. Commercial Loans * Commercial Loans are for business purposes. Usually given to companies to meet their various business needs. * This category of loan is introduced with the aim to help establishments sustain and grow. * Examples:- Running Finance, Cash Finance, Term Finance, Export Finance, FATR, FAPC II etc Some of its salient features can be described as below: Unrestricted funds: Money extendable under the commercial loans program has no restrictions. A business organization that is eligible for extended line of credit can inevitably find large amount transferred to its bank account. The money can range from small dollar amounts to large sums. * Online Application: Filing of online application for grants is possible. Business owners just need to fill in an online form and submit the same with required documents. * Repayment Assurance: An enterprise owner has to provide assurance of repayment to the lender.
This can be done by offering collateral support, credit card, property documents or any other valuables that provide enough assurance. Funds drawn against repayment assurances are kept extended. * Not Restrictive to Business Types: Commercial loans are available to all categories of entrepreneurs without restriction. It means that anyone from any industry can apply for finances. It is unimaginative how this loan support works for all. Just anyone can qualify irrespective of the industry type, small business or large organization. * 24 x7 hr Approval: Business Loan approval is kept open for 24 hours.
So, any entrepreneur in an immediate need can apply for the grant. Banks are not imaginative and so deploy their work force on a 24×7 hr basis to get an organization funded. It is also true that the support staff does all the nitty-gritty, goes through the details, conducts enquiries, and then forwards the application to make grants available. * Good Credit Scores Required: Financers look for good credit scores before granting loan to an organization. So, an enterprise should work hard to build up its credit scores. Statistical Data: