A bank loan is a monetary loan received from a commercial lender. The loan may have a specific purpose, such as a car loan or a home loan. It will have a predetermined duration, and the loan will have an interest rate that is either fixed or adjustable. Generating loans and charging interest on those loans is the very purpose of a modern bank.
Banks can provide a loan in different ways. A loan can be in cash or in non-cash form. If a client takes advantage from a bank by issuing the bank’s goodwill through making a contract, this will be treated as “goodwill loan” of the bank.
Functions of Bank Loans Provided to Individuals: Loans cannot be collected without the price. Nobody can afford to keep something idle and unproductive, which was purchased paying a competitive price. Loans are usually taken by individuals or corporate houses. Functions of such bank loans include among others the following:
- Consumption Loan,
- House Loan,
- Automobile Loan,
- Probate Loan,
- Education & Medical Loan,
- Holiday Tour Loan,
- Wedding & Social Ceremony Loan.
Functions provided to Individuals:
Banks give loans to individuals in order to purchase necessities, which they cannot buy with their limited financial means. The loans, which fall under this category, can be of the following types –
Consumption Loan: Consumption demand for durable goods often individuals cannot afford in regular personal inflows. Banks nowadays give loans for these purposes according to the needs of the customers. The loans may be granted to buy costly furniture, freeze, TV, computer, laptop etc. While extending such loans bank wants to be sure that the potential borrowers have regular sources of adequate income.
House Loan: People of limited income face problems in buildings their own houses. Banks provide house loan payable at the end of a specific term to people in exchange of some interest/profit. Thus banks succeed to a great extent in solving the housing problem of the urban people.
Automobile Loan: Banks give loans to the customers to buy automobiles for commercial use or for personal use for comfort. Loans for private cars, office cars, trucks, buses, etc are included in such category.
Probate Loan: It is necessary to register the gifted/willed assets at the time of handover. The registration of such assets may be very costly for the person who receives the assets. In this case, banks on an assurance of the mortgage of the gifted property give loan in order to meet the registration expenses and thus help the client to acquire the asset.
Education & Medical Loan: Education and medication are the two basic needs of human beings. Commercial banks sometimes provide loans to pursue studies or defray Medicare expenses when becoming sure about the repayment of such clients.
Holiday Tour Loan: For increasing the pleasure form the traveling & tour, banks provide holiday loan to those who have a definite source of adequate regular income.
Wedding & Social Ceremony Loan: Man is a social being. Different rituals and social ceremonies are required to be observed in society. Sometimes, it is difficult for fixed income persons to bear the expenses of a wedding or any other ceremony. By providing loan such clients to bear the expenses required for performing such ceremonies.