ARRANGING

FUNDS
 WHAT IS CREDIT?
Credit is a form of borrowing in which a person or an
organisation (borrower) borrows some resource,
usually money, from another person or institution
(lender) and instead of immediate payment, the
borrower promises to pay at a future date. In return, the
lender usually charges interest. Example: A needs
money to buy a car. Thus, he borrows 5,00,000 from the
bank and promises to repay after 1 year. The bank
charges 6% interest. Here, A is the borrower and the
bank are the lender. The borrower gets 5,00,000 that
can be repaid after 1 year and the lender gets additional
income in the form of interest.
LENDER VS BORROWER:
LENDER: The lender is the person, institution
or organisation that lends money with the
expectation to be
repaid along with interest. The lender can
provide the loan for various uses and the
repayment can be in
instalments or lump sum.
BENEFITS TO THE LENDER:
The extra money that is collected in the form
of Interest can be used as a source of income,
this Interest can
be further be invested in further avenues.
TRADE-OFFs: There is some sort of risk
involved to the lender despite the collateral.
Sometimes, the lender may not even recover
the principal.
BORROWER: The borrower is the person,
institution or an organisation that uses the
resource, usually money, from the other party
and repays the amount. The borrower is
charged with interest that must be paid till the
principal is repaid.
BENEFITS TO BORROWER:
People can use the borrowed money to meet
their needs. For example, banks offer different
kinds of credit such as Car loan, Personal loan,
Housing loan etc. Companies can use the
borrowed money to meet their short term
needs like meeting day-to-day activities and
long term needs like investing in fixed
capital.Companies also use the borrow the
money to expand and diversify.
TRADE-OFFs: The rate of interest can be very
high sometimes; Individuals and companies
are under the stress to repay. Non-repayment
of loan can lead to legal trouble and the
collateral can also be taken away.
IMPORTANCE OF CREDIT:

For Companies:
• Credit is a source of funding for the companies and it includes loans from commercial
bank, loans from financial institutions, issue of debentures (it is a form of debt that a
company uses to raise money from the public and it does not have any collateral) and
public deposits.
• The company uses the borrowed money to meet its short term and long-term needs.
Then, from the profits that the company earn, the funds are repaid along with the
interest. This leads to economic transactions taking place.
• The company can use the money to invest in future projects.
• The company can also use the credit to expand and diversify.
• Funds are required to buy tools and raw materials that are needed for the production
of goods (maintain stock and inventory).
• Funds are needed to maintain the cash flow of the company (inflow and outflow of
cash)
IMPORTANCE OF CREDIT:

For Individuals:
• Individuals use credit to purchase household items
like TVs, fridge, AC, etc.
• They can also use credit to meet bigger needs like
buying a house, car, land etc.
• Students also borrow money to meet their
educational expenses. • Credit is also useful to meet
unforeseen expenses.
• Money is also borrowed in order to maintain a certain
lifestyle.
 MAJOR TYPES OF CREDIT:
1. REVOLVING CREDIT:

Revolving credit is a form of credit in which the borrower is allowed to borrow more money
once
some portion of the earlier borrowed is repaid. A credit limit is set by the bank which is the
maximum amount that the borrower can borrow before repaying the earlier loans. Interest is
paid on the current balance. One of the most popular forms of Revolving credit is Credit
Card.
PROS:
• It helps the borrower to get money whenever they need as it leads to flexibility.
• It is useful to maintain stability in business as it leads to steady cash flow.
• It has a lower interest rate.
CONS:
• Commitment fees are charged along with interest. The funds borrowed must be used
carefully.

CREDIT CARDS: a credit card is a financial instrument issued by banks with a pre- set credit
limit
helping you make cashless transactions. The card issuer determines the credit limit based on
your credit score, credit history and income. The bank issues the credit card to the borrower
after it had been approved. They are used to make purchases. Depending upon how much of
the earlier borrowed money has been repaid along with the interest, the bank either accepts
or declines. If it is approved, the payment is made to the seller from the borrower’s account
and the account bank balance is reduced..
 MAJOR TYPES OF CREDIT:

REWARD CREDIT CARD:

Reward credit cards give some sort of rewards in the form of cash back, points, travel
points
for every rupee borrowed and these rewards can be used in multiple ways.
SECURED CREDIT CARD:
In case of Secured credit card, some money must be deposited in the bank before getting
a credit card. This acts as a security.
LOW INTEREST CREDIT CARD:
As the name suggests, the interest charged on this type of credit card is low.
CASHBACK CREDIT CARD:
In this type of credit card, a small amount of money spent on purchases is refunded.
STUDENT CREDIT CARD:
This credit card is given to college students who are above 18 years for educational
purpose.
The interest rate is low and has a validity up to 5 years.
TRAVEL CREDIT CARD:
This is a type of credit card that is mainly used for travelling and offers various deals with
respect to travelling.
BUSINESS CREDIT CARD:
This type of credit card is mainly offered to business people rather than individuals to
meet their day-to-day business expenses.
 MAJOR TYPES OF CREDIT:

2. INSTALMENT CREDIT (LOANS):

Instalment credit is a loan in which the principal money borrowed is
repaid in different fixed
instalments over a period of time instead of repaying in lumpsum.
Interest is also paid along with the fixed instalments. Loan is an
Instalment credit. As per Investopedia,” A loan is when money is given
to another party in exchange for repayment of the loan principal
amount plus interest.”

PROS:
• It has lower interest rate and higher borrowing limit.
• It does not require any collateral.
• It can be managed easily and is flexible.

CONS:
• The fees and penalties are high
• The payments are higher than what is paid in case of credit card.
• Thus, the debt can increase and so the stress to repay will also
increase.
 MAJOR TYPES OF CREDIT:

3. OPEN CREDIT:
Open credit is a form of agreement between the lender and borrower
in which the lender allows the borrower to withdraw continuously up
to a certain limit and in return, the borrower must make timely
repayments. Interest is charged only on the amount that is used.
Phone bills and Trade Receivables are some of the examples of Open
credit.

PROS:
• The borrower does not have to pay unused charges.
• The money is available whenever needed.

CONS:
• The lender may increase or decrease the maximum limit depending
on the credit worthiness of the borrower.


LOANS: TYPES AND DETAILS

Secured Loans:

A secured loan
is a loan in which the borrower

pledges some asset as collateral

for
the loan, which then becomes a secured debt owed to the creditor who gives the loan.

Types of secured loans:

1.Home loan
2. Loan against insurance policies
3.loan against mutual funds and shares
4.loan against FD
5. LAP
6. Gold loan
7. Mortgage
home loan

A home loan is a secured loan taken from a financial institution for

the purpose of buying a residential property. You can avail a home
loan to buy a ready-to-move in house or apartment or one that is
under construction. Home loans can be availed from both banks
and Non-Banking Financial Companies (NBFCs).
These have varying interest rates which are often linked to your
credit score. Home loans typically have a tenure of up to 30 years
and have to be repaid as Equated Monthly Instalments. You can
also get tax deductions on both the principal and interest
component of your home loan under Section 80C and Section 24
respectively of the Income Tax Act.

ELIGIBILITY:
Banks have a list of eligibility criteria for
home loans. The first thing banks look at is
one’s credit history to understand their
repayment habits. Typically, a credit score of
750 and above is preferred. Some other
important factors considered are as follows:
Age - 18-70 yrs.
Employment type: salaried/self employed
Minimum Annual Salary - 25k/month
Work experience: 2yrs
Collateral Security
LTV ratio - up to 90%
Assets, liabilities, stability, and continuity
of occupation Residency status (Resident
Indian/ Non-Resident Indian)
Documents Required:
The following documents are required, along with
your duly-filled loan application.
For Salaried employees:
•Address proof – Aadhar card, Passport, Driving
Licence, Telephone Bill, Ration Card,
Election Card, Any other Certificate from
Statutory Authority
•Age Proof – PAN Card, Passport, Any other
Certificate from Statutory Authority
•Income Proof – Includes salary slips of last 3
months, Form 16 for last 2 years, and latest 6
months bank
statement
For Self Employed individuals:
•Address proof – Aadhar card, Passport, Driving
Licence, Telephone Bill, Ration Card,
Election Card, Any other Certificate from
Statutory Authority,
•Age Proof – PAN Card, Passport, Any other
Certificate from Statutory Authority
•Income Proof – Pertaining to business and ITR,
such as proof of business existence, last 3 years
income tax
returns, accountant-certified balance sheets, and
last 12 months bank account statement
Loan against insurance policies:
A loan against an insurance policy is a form of loan against security where you can pledge some form of a financial asset, which in
this case is your insurance policy, for which the lender will grant you a loan, quite similar to a loan against property.

ELIGIBILITY
You need to be an Indian resident.
You can only qualify if you have attained 21 years of age.
You must be either self-employed or a salaried employee with a regular income source

Required Documents: For Self-Employed Individuals and non-professionals:

You need following documents to avail a loan
against securities:
•Application form
•All KYC documents including PAN Card, Identity
Proof, Address Proof
•Passport-sized photographs
•Original Insurance Policy or Financial Security
that you intend to pledge as collateral
•Deed of Assignment
For Salaried Individuals:
•Last 3 months salary slips
•Form 16
•Proof of Employment in case your present
employer does not match with your Form 16
information
•Last 6 months bank statements that reflect
any existing EMI repayment and salary.
•Proof of business continuity by providing any one of these
documents - Shop and
Establishment Certificate/Tax registrations-VAT/Service
tax/GST registrations
•Proof of firm constitution via submission or either of these
documents -
MOA/AOA/Partnership Deed/GST Registration
Certificate/Form 32 for knowing the latest directors
•Audited financials for the last 3 years
Tax Audit Report for the last 3 years - Form 3CB + 3CD in
case of proprietorship and partnerships and Form 3CA +
3CD in case of Companies
•Latest VAT/GST/Service Tax returns for the current
financial year
•The breakup of all secured and unsecured loans
•As on date List of Directors and Shareholding Pattern
•Sanction letters for any existing loans with corresponding
statements reflecting EMIs for the last year
•Business Account Statements for the last 1 year
Loan against mutual
funds and shares
Eligibility:
Also called as loans against securities-
Loan against securities enables you to
take advantage of your investments by Must be of 21 years of age
pledging financial assets such as fixed
Must be an Indian national/resident.
deposits, mutual funds, insurance,
shares, etc. as collateral to the lending
institution to get a line of credit. You Salaried individuals or self-employed professionals
can borrow funds between 5 lacs to 10 with a regular source of income and have a min.
crores against mutual funds and shares
at floating rates of interest ranging
between 10 to 18 per cent.
Security valve of 10 lakhs
The categories of securities that can be
used as a collateral to obtain a loan Documents required:
against securities like shares and
mutual funds include: Mutual Funds,
Copy of PAN card, driving licence, Aadhar card as
Bonds, ETF’s, Shares:
identity proof

Aadhar card for address proof

Document proof of securities.

Passport size photograph

Loan against FD
Loan against FD (Fixed Deposit) is a
type of secured loan where customers
can pledge their fixed deposit as
security
and get a loan in return.
•The amount of the loan depends on the
FD deposit amount. This can go up to
90% – 95% of the deposit amount
Documents required:
Application form, FD receipt, ESC
mandate & cancelled cheque for non-
cumulative FDs, etc. may be required
when applying for a loan against FD
Eligibility:
•Loan against fixed deposits is extended to all the
fixed deposit holders, be it individual holders or
those
with joint accounts
•FD in the name of a minor does not qualify for this
facility
•Investors of a 5-year tax-saving FD cannot apply for
this type of loan Benefits:
•Lower interest rates compared to other types of
loans like personal loans (0.5% – 2% above the
applicable FD rate)
•No need to break FD and go for premature
withdrawal thus suffering a loss of interest on
FD
•No processing fees charged
Can be availed against domestic as well as NRI FDs
•Can be repaid as a lump sum or in instalment (not
later than FD tenure)
LAP (Loan against
property):
Loan Against Property scheme is a secured
personal loan which you can avail by
pledging your property as a security
or a collateral. These personal loan schemes
are also known as mortgage loans.
Interest Rate - 8.00% p.a. onwards to up to
25% p.a.
Loan Amount- Up to Rs.25 crore
Loan Tenure -Up to 20 years
Processing Fee - 1% - 3% of the loan amount +
GST
ELIGIBILITY:
For salaried employees:
•Residing Indian citizens
•between 23-62 yrs. of age
•working professionals with a
min. of 3 years of work
experience
For self-employed individuals:
•Residing Indian citizens
•age between 25 and 70 yrs. of
age
•able to prove a steady source of
income
Documents required:
•Application form with a recent photograph
•Proof of Identity (Passport Copy /Voter ID card
/Driving License /PAN Card)
•Address Proof (Ration card /Telephone Bill /Electricity
Bill /Rental agreement /Passport copy
/Bank Passbook or Statement /Driving License)
•Age proof (PAN Card /Passport /any other certificate
from a statutory authority)
•Bank Statements (Bank statement /Bank Passbook for
the last 6 months) OR Last 6 months salary slips
•Form 16
•Income Tax Returns for the last 3 years
•Processing fee cheque
•Documentation pertaining to the property offered as
collateral
Additional documents for Loan Against Property for
self-employed and SMEs:
•For Self Employed: Income statements and other
financials for the past 2 years attested by a CA
•For SMEs: Audited financials for the last 2 years
Gold loan:
A gold loan is a secured loan wherein the borrower keeps their
gold, ranging from 18K to 24K, with a bank or a financial

CURRENT RATES
institution as security and avails capital against it.

Interest rates:
The interest rates on gold loans vary based on the purity of gold.
The higher the purity of gold, the higher the amount That can be
availed. Interest rates vary from 8% per annum to 18% per
annum in the public sector, whereas in the private sector these
Name of the Interest Rate Loan
rates are as high as 24% per annum. bank amount
Tenure:
A gold loan is generally a short-to-medium term loan, where the HDFC Gold Loan 11% p.a. to 16% p.a. Rs.10,000
tenure ranges from six months to 24 months. Thus, it onwards
is not a long-term loan instrument. Canara Bank
Gold Loan 7.35% p.a. Rs.5,000 to Rs.35
lakhs
ELIGIBILITY:
Muthoot Gold
Anyone who has gold can get a gold loan. Unlike
personal loans, which include stringent eligibility Loan 12% p.a. to 26%p.a. Rs.1,500
criteria, gold loans can be availed by any Indian onwards
resident, which can include salaried professionals,
businessmen, housewives, and even SBI Gold Loan. 7.00% p.a. onwards Rs. 20000
farmers. to 50 lakhs.
Even low credit score doesn't make one ineligible
for a gold loan
Unsecured loans:

Unsecured loans do not require any upfront security. It is granted based on an

individual's Creditworthiness. Unsecured loans carry a higher risk than secured loans
because they are based only on credit scores.

Student loans, credit cards, and personal loans are just a few examples.

Types of unsecured loans -

1. Consolidation loans
2. Personal loans
3. Short term business loans
4. Flexi loan
5. Education loan
6. Vehicle loan
7. Student loan
Consolidation loans
In this type of loan, a person usually takes another loan to pay off the previous multiple Loans and liabilities.
Consumers can apply for consolidation loans and short-term loans.
ELIGIBILITY:
You must be between the age of 20 - 60 years
Citizen of India
Salaried individual
The minimum monthly salary should be around
Rs.25000
Documents required -
1. identity proof - you have to submit your KYC document that will
verify your identity (it may also include a
voter’s Id card, PAN card)
2. Address proof - showing the proof that you are a resident of India
or an Indian citizen. These include Aadhaar
cards, Electricity bills, or phone bills.
3. Creditworthiness - Borrowers must demonstrate their financial
stability or ability to repay the lenders. This
step is critical for getting the loan on time. Any inconsistency in this
can prevent you from acquiring a loan.
4. Employment proof - It is a necessary document for understanding
your financial situation and determining
your creditworthiness. It will serve as documentation of your
consistent source of income, assisting you in
obtaining loans on time.
Benefits of consolidation loans -
1. One of the most significant benefits of
consolidating debt is that you don't have to make
many payments each Month; instead, you only
have to pay once a month. It makes it easier for the
individual to trace down payment records.
2. Paying multiple loans at the same time results in
lower interest as compared to paying one loan at a
time.Moreover, it adds more utility if you get the
consolidated loan at lower interest.
Drawbacks
1. Consolidating your debts may result in additional
fees. Annual fees, originating costs, and so on.
2. If strong credit scores are not maintained,
consolidation loans may have higher interest rates.
Getting a loan with a lower interest rate is probably
the best decision you'll ever make, but getting a
loan with a higher rate of interest may cause some
issues.
3. Failure to pay your bills on time might harm your
credit score and subject you to further costs
Current rates:
The current rate of interest for taking the
consolidated loans is 10.25% with a minimum
Salary of 25000.
Personal Loans

Personal loans are those which are brought up for a wide variety of
use. It can be offered by banks, authentic credit unions, and online
lenders. Furthermore, timely repayment needs to be maintained
along with the interest.
What is the procedure for obtaining a personal loan?

To get a personal loan, you must first apply to a lender (this might
be an internet lender or a credit union). After that, you must fill
out an application, which the lender will review and decide
whether or not to grant money. If you are authorized, you will
receive the loan and begin the final paperwork.
PERSONAL LOANS
Documents Required:
Identity proof - can be any document that
proves one's identity, such as a driver's
license, a PAN card, or a
voter card.
Address proof - It is a set of
documentation that demonstrates you
live in India. For example, utility bills
and Aadhaar cards.
Bank statements are required to
understand an individual's financial
situation and creditworthiness
ELIGIBILITY:
Eligibility - Individuals of the
age group 21 - 61 are eligible to
apply Those who are self-
employed and salaried.
Minimum earnings should be
Rs. 25000
All those who are applying
necessarily should have a
credit score of more than 750
Or equal to it.
Current rates - According to the central bank of India (RBI), the current rate is 9.85% and above.
Other technicalities -The maximum amount that a person can get, on the other hand, is dependent on the
source. Also, if you are self-employed, you will receive 30 lakhs, while salaried employees would receive 20 lakhs.
Benefits
1. Personal loan applications are simple to complete, especially if virtual
applications demand only a ew uploads and documents. Furthermore,
some businesses offer doorstep verification services.
2. Your credit score will improve if you consistently make your payments
on time. Late payments will almost certainly harm your credit score,
making it more difficult to obtain loans in the future.
3. In most circumstances, personal loans do not require collateral
security. This protects you from the considerable risk of losing your
home and personal belongings.
Drawbacks
1. While the most creditworthy personal loan candidates may be
eligible for low APRs, others may face rates as high as 36%. Other
sources of funding may be used to supplement this.
2. In addition to the cost of cover, many brokers and lenders levy
additional fees and application fees. Furthermore, many debtors are
unable to make regular payments due to a variety of penalties.
3. Taking out a personal loan isn't always the best option because it
leads to several borrowings, which can be difficult to handle for certain
people. As a result, it is prudent to make a calculated judgment.
Short-term business loan
These kinds of loans are generally taken to resolve any due and payments of temporary or business-related capital. This is a viable option
for small businesses or start-ups that usually aren't able to get timely loans. The duration of the repayments of such loans is generally
within a time of six months and at most, 18 months.

Documents Required: Benefits

The applicant has to show
documents such as voter ID
card/ Aadhaar card/ Driving
license/ PAN card, proof of
business ownership, source of
income (passbook)
The credit score needs to be
685 or above
11. Short-term business loans are paid within a span of short duration hence,
require fewer interest payments and are significantly less.
2. These are less risky compared to long-term loans because repayments are
made when due arises in a timely constraint eliminating the risk factor of non-
payments.
3. Short-term loans act as a lifesaver for many small traders and
entrepreneurs to meet appropriate uncertainties.

ELIGIBILITY:
The individual should be a
minimum of 18 years of age.
They necessarily are a citizen
of India
The applicant requires to be
earning and should have
some stable source of income
Drawbacks
1. Personal property is sometimes used to repay the debt, resulting in the
insecurity of personal assets.
2. Short-term loans necessitate weekly or daily payments, posing a challenge
for all those individuals or small traders who are not making as much as they
should.
3. One should only pursue this choice after carefully calculating their
outflows and inflows; otherwise, They risk becoming locked in a debt trap.

Current rates up to 26% rate of interest

Other technicalities - up to 30 Lakhs and repayment ranges from a period of 12 months and 60 months
Flexi Loan
Flexi loans are similar to overdrafts in that they allow you to borrow up to a particular amount that is permitted by the lender. Only the
amount that has been used will be charged with interest to have a good credit score and no negative inputs, one must make regular
payments
Documents Required: Benefits
Identity proof - can be any document 1. Anytime you are free to access the amount within the credit limit set by
that proves one's identity, such as a your lender.
driver's license, a PAN card, or a 2. Repayment of outstanding amounts can be done owing to the availability of
voter card. sufficient funds in hand. No penalties and extra charges are made.
Address proof - It is a set of 3. Interest is computed just on the amount you withdraw, not the complete
documentation that demonstrates amount sanctioned by the tender, thus you save on overall interest. This
you live in India. For example, utility means that if you take out a loan for Rs. 15 lakhs but only withdraw Rs. 10
bills and Aadhar cards. lakhs, you will only have to pay interest on the Rs. 10 lakhs. As a result, your
Bank statements are required to EMIs will be modest, making repayment of your loan simple.
understand an individual's financial
situation and creditworthiness

ELIGIBILITY:
- 23 minimum age - 65 maximum age.
The credit score should be 700 or
above Should be an indian citizen and
resident of India. Necessarily be a
salaried employee.
However, exact eligibility may vary
from different lenders
Drawbacks
1. Because there is no alternative to charging money from paying off the
collateral, therefore it is more prone to reviving the interest rates resulting
in higher risks.
2. No restrictions on the amount henceforth many people end up spending
more without making the earlier payments and this way they get trapped in
the cycle of debt.

Current rates: The interest rate charged on Flexi personal loans ranges between 13.99%- 15.25%
Other technicalities: INR 20 Lakhs if you are salaried and INR 30 Lakhs if you are a self-employed businessman
when availing of a loan.
 Vehicle loan
FBorrowers use a vehicle loan to buy a new or used personal or commercial car. Vehicle loans are secured loans in which the collateral is the vehicle.
Lenders provide it for new and used cars, two-wheelers (often referred to as a Two-wheeler Loan), and commercial vehicles (generally called a
Commercial Vehicle loan). Banks usually offer auto loans up to 90% of the cost for new vehicles and 85% for second-hand vehicles. The payback is
depending on your monthly income and ability to repay, with a typical repayment period of 12 to 84 months.

Documents Required: Benefits

Identity proof - all those documents 1. Instalment repayments can be arranged easily according to the person's wishes
which verify the identity of a person. based on the tenure you select. Smaller repayments lower the risk of defaulting on a
Such as Voter Id cards, Passport. loan and improve affordability.
Residence proof - Electricity bills, rent 2. There is no need for collateral security because the car will act as such. If payment is
documents, life insurance policy, ration not made when it is due, the bank will automatically seize the car to pay off the debt.
card, and driving license. 3. Repayment of the EMIs will improve your credit card score and ensure lenders of
Age proof - birth certificate, class 10th your ability to repay, which may result in them providing you lower interest rates.
mark sheet, Aadhaar card.
Income proof - income tax return
documents, passbook showing income Drawbacks
statement for the past three Failure to make payments can lead to seizure of your vehicle hence, it is
months. important to comply with the terms and conditions.
Irregular payments and due outstanding can hinder the score of your credit card.
ELIGIBILITY:
The minimum age of the person needs
to be 21 years and the maximum of 60
years.
Should be a resident of India.
Annual salary should be in the range
of 2,40,000 - 3,00,000 per annum.

Current rates
The rate is between 16.25% p.a. to 18.00% p.a.
Other technicalities -
A new car loan requires a minimum borrowing amount of Rs. 1,000,000. The maximum loan amount will
be determined by the car's price, model variant, client profile, and other factors.
Education Loan
-This is a type of loan that students avail for the post or higher education. It covers tuition fees, living expenses, books, and supplies which
are required for pursuing the degree. How does an education loan work? Education loan is taken by such students who wish to go for
higher degree and education but lack proper resources and amount to do the same. This can be borrowed from the government and
private institutions; however, it varies from lender to lender.

Documents Required: Benefits

1) All the documents need to fill duly along 1. Education loans enable the family members to disperse their savings to invest in some
with the candidate’s photo profitable areas instead of spending them all at a time.
Photograph of the candidate (maximum
2. EMIs are payable only after the completion of education, so there is no need to worry
2) Marksheet of class 10th and 12th
about the repayment.
Student course with the cost of study
Aadhaar card and PAN card of the student 3. Education loan covers traveling expenses, living costs, and many other expenses.
Residence proof - electricity bills, ration Hence, these don’t create any financial burden.
card, rental agreement. Financial statement
- bank records of the past three months.
Drawbacks
1. The education loan needs to be repaid after the stipulated amount of time given to
ELIGIBILITY: them, ignoring the fact that the person has adequate monthly income or not.
The candidate must be a resident of 2. Education loans at times create a long-term debt for the students, the principal
India. amount along with the interest creates a lump sum amount that students need to repay.
The candidate should have secured
admission to any institute either in India
or abroad.
The candidate must fall in the age group
of 18 - 35 years of age.
The candidate should be doing
Undergraduate/ PG/ or diploma courses.
The income of parents Needs to be
stable.

Current rates:
The current rates are 6.65 - 8.65%
Other technicalities:
Students who wish to pursue their education in India get the maximum amount of 15 Lakh and more than
25 Lakh who do from abroad
OTHER FACILITIES

OVERDRAFT: Overdraft Facility is a financial instrument in which you can withdraw money from your
savings or Current account, even if your account balance is zero, essentially a type of short-term loan to
be repaid in defined tenure, This feature is provided by almost every financial institution, including
banks and NBFCs.

PAYDAY LOANS: A payday loan is a type of short-term borrowing where a lender will extend high-
interest Credit based on your income. Its principal is typically a portion of your next pay check. Payday
loans Charge high interest rates for short-term immediate credit. They are also called cash advance
loans or check advance loans.

PAWN SHOP LOAN: pawnshop loan is what's known as a collateral loan. To borrow money from a
pawnshop, you provide an item as collateral—such as jewellery, a TV or a musical instrument—and the
pawnshop provides a loan based on its appraised value. If you don't repay the loan as agreed, the
pawnshop can keep your collateral and resell it to recoup their losses.

LOAN AGAINST INSURANCE: A life insurance policy acts as a financial safety net for the policyholder's
family in the face of an unfortunate event, the provision of a loan grant is one such benefit of a life
insurance policy that can be used by the life assured in a financially troubling situation. Besides
providing a hassle-free loan process, the interest rate is much lower than the rate on traditional types of
loans.
 DEBT AND ITS CONSTITUENTS
DEBT TRAP

The debt trap is a situation where one is forced to over consume loans to repay your existing debts. Over
time, one gets stuck in a situation where the debt spirals out of control, exceeding your repayment
capacity, making you fall into a debt trap.

1. Whenever you borrow a loan from a moneylender, two elements come into force – the first is the
principal loan amount (the amount you borrow), and the second is the interest (the amount the lender
charges on the principal loan amount).

2. You can only make progress in repaying the loan when your principal starts reducing. But there’s a
hitch here. When you repay the loan every month, you make a payment towards both the principal as
well as the interest.

3. Most loans have amortising structures. That means your loan is designed to be paid off in a series of
fixed payments over a loan tenure, and each payment you make towards your loan applies to both the
principal and the interest.

4. When one can’t afford to make payments, concerned is most likely to fall into a debt trap. The
principal amount doesn’t get reduced, and the interest keeps on piling, making it almost impossible
to pay off your loan.
 TWO RELIABLE INDICATORS OF DEBT TRAP
EMI-Salary Ratio
For example, if your EMI is ₹10,000 and your take-home salary is ₹20,000, your EMI-salary
ratio is 0.5. Experts recommend that this ratio should be below 0.3.
DEBT- asset Ratio Known as the debt ratio, is a leverage ratio that indicates the percentage
of assets that are being finances with debt. For example, if your loan balance is ₹25 Lakh
and your ₹10 Lakh, your loan-asset ratio is 2.5. Experts recommend this ratio to be under 0.5.

CAUSES OF A DEBT TRAP

1. EMIs exceed 50% of your income

2. Fixed expenses are more than 70% of your income.
3. Exhaustion of credit card limit.
4. Too many loans.
5. Lack of affordability to put aside money for savings.
6. Rejection of Loan Application.
WAYS TO PREVENT DEBT TRAP: GENERAL ASPECTS TO COMBAT DEBT

• Identify the issue: Determine the problem and analyse it to identify areas of concern that may or may not be
in your control. Subsequently, create a plan that can meet your debt repayments. Here, you may wish to
address specific aspects that require your attention and modification. Doing so not only helps you to
acknowledge your current predicament but also prepares a clear path for your future. A detailed and
meticulous review could be your answer to your current debt problems and help you come closer to a viable
solution

Prioritise your needs: Having done a thorough analysis, you will now be able to identify essential, semiessential
and non-essential items. Create a priority list to segregate your needs. For instance, if you are in a
debt trap, you may want to refrain from purchasing non-essential or luxury items. Semi-essential items, on the
other hand, are not critical for survival but add to your comfort. Avoid spending on these if possible, or look
for cheaper alternatives. Avoiding non-essential and semi-essential items to facilitate debt repayment is a first
step that can have a long-term positive effect on your financial condition.

Make behavioural changes: To achieve small cost reductions, you may want to make some behavioural
changes. For instance, to get out of bad debt, you may want to reduce the frequency of eating out. This
ensures cost savings on food, and it can also benefit your health. Preparing a monthly expenditure plan and
calculating the extra amount you save by making behavioural changes will help you realise how much you can
save over time.

Build an emergency fund: Saving is a healthy habit. And while it is important to save money, you should
also create a special fund to handle emergency expenses. For example, if you meet with an accident and are
out of work for a few months, you’ll need money to sustain yourself. With an emergency fund, you can
comfortably manage your expenses. An emergency fund can help you navigate tough times without having to
fall back on a loan

 DEBT CONSOLIDATION

Debt consolidation is one of the best ways to overcome poor financial situation. If one carries around
multiple high-interest loans or outstanding credit card balances, taking a low-interest personal loan is
a very clever step to be debt-free. The personal loan helps clear all our outstanding balances and
convert our multiple payments into a single monthly payment made towards our debt consolidation
personal loan.Why to take a debt consolidation?

1. A debt consolidation loan allows us to lower your interest rate, reduce your monthly payments, and
pay off your debt quicker.

2. It enhances our financial freedom and helps you to budget your monthly expenses properly.

3. Since you need to make just a single monthly payment rather than multiple loan EMIs, you reduce
or eliminate the chances of missing payments, thus avoiding late fees and higher interest rates.

4. It ensures timely payments that improve your credit score and enhance your creditworthiness for
future loans.
Principal

The initial size of a loan or a bond is referred to as principal in the context of borrowing (the
amount the bond issuer must repay).
In the context of investment, principal refers to the initial money invested in assets, regardless of
any earnings or interest.

Interest
The monetary payment for the privilege of borrowing money is known as interest, and it is usually
stated as an annual percentage rate (APR). The amount of money a lender or financial
organisation earns for lending out money is known as interest. Interest can also refer to a
stockholder's share of ownership in a firm, which is commonly expressed as a percentage.

What Is Amortization and How Does It Work?

An amortising mortgage is a fixed-term loan with a sequence of payments that are roughly equal.
Your lender arranges for the payments to be made in such a way that the entire loan is paid off at
the end of the period. Each payment contributes to both the principal and the interest. The
majority of your payment goes toward interest at first, but as you get closer to the conclusion of
the loan term, most or all of it goes toward the principal.

The amortisation process is hampered by late payments. You can either make more principal
payments or extend the loan term to get back on track.
 Home Loans with No Amortization

Your payments on a non-amortization loan are not structured to pay off the debt at the conclusion of
the loan period. Non-amortization loans, on the other hand, have a maturity date, which means you
may be required to make a lump sum principle payment when the loan matures. Payments are
usually made on a monthly basis, much like with an amortising loan. You may make interest-only
payments in many cases, in which case your principle remains unchanged.

Pros and Cons of each:

You know exactly how much you have to pay and when your loan term finishes with an amortising
loan. You can make small monthly payments for the majority of the loan period with a non-
amortizing loan. House flippers who wish to keep costs down when buying and selling homes may
benefit from these loans. Non-amortizing loans are also appealing to persons with low incomes who
are unable to make the payments on an amortising loan at this time.

Falling property prices, on the other hand, might swiftly wipe out any equity you've built up in your
home. Non-amortizing loans carry a higher risk because the value of your house may decline while
the principal on your loan remains fixed.
What Are the Credit's 5 C's?
Lenders utilize the five C's of credit to assess the creditworthiness of potential borrowers. The
algorithm considers five borrower attributes as well as loan terms in order to assess the likelihood of
default and, as a result, the risk of financial loss to the lender. What are these five C's, though?
Character, capacity, capital, collateral, and conditions are the five C's of credit.

EMI
An equated monthly instalment (EMI) is a fixed monthly payment made by a borrower to a lender on
a set day each month. Equated monthly instalments are applied to both interest and principle each
month, and the loan is paid off in full over a certain number of years. The borrower pays fixed
periodic payments to the lender over several years to retire the loan in the most common forms of
loans, such as real estate mortgages, vehicle loans, and school loans.
Thank
You!