Borrowing money for making purchases has been a trend lately. This money is borrowed from various financial institutions like the columbia bank aberdeen. People prefer paying small amounts as EMI rather than giving away a big chunk of their savings in one go.
But to borrow money, one must be aware of how obtaining loans from the bank works.
Securing a loan
The process of obtaining a loan can be understood in three steps:
- Deciding on the required loan amount;
- The period of repayment, i.e., the date for the full payment of the loaned amount; and
- Determining an interest rate to be charged over the principal amount.
Once the type of loan is finalized, a monthly EMI is determined to be paid by the borrower with interest.
In this process, the bank will look into the borrower’s credit history, financial assets, and income. This information helps determine the loan amount and the interest that can be charged over it.
A borrower with a good credit score is entitled to an interest lower than the conventional borrower.
What is the interest rate
The loan amount is obtained as a lump sum, but its payment and reimbursement take place in several smaller settlements. Since this is a lender’s service, the interest is levied as a charge for that service.
The interest rate is expressed as a percentage like 10%, 15%, and so on.
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Securing a loan has become a cakewalk in the 21st century. All one needs to do is choose a trustworthy lender, follow the procedure, and pay the EMIs in due time.
Make sure to maintain an excellent credit score as it can reduce the interest significantly on the borrowed amount.