We humans always strive for ‘better.’ In this pursuit, there can be instances where the personal expenses rise beyond incomes. In such situations, we tend to rely on borrowings, formally termed as loans.

“A loan can be defined as a borrowing of a set amount of money with the promise to pay back, including an additional amount (interest), to the lender.”

Loans or borrowings can take two forms mainly; formal and informal. Informal means of borrowing usually carry high interests to compensate for the easy access of funds to the borrower. These could usually take place between family, friends, and unregulated institutions. Formal means of borrowing could come from regulated institutions such as banks and other financial institutions. These will comparatively carry a low interest rate (as opposed to informal means), but will require documentary evident for proof of repaying capability.

There are different types of loans provided by banks to suit different personal financial goals of individuals. For an example, banks grant student loans for students to help with their education goals. They provide housing loans for the sole purpose of putting up a home for the individual. Banks provide business loans to help set up a new business. While these are all goal-specific loan schemes, there are also loans, termed ‘personal loans’ which are given open ended. The borrower can use these to finance any financial requirement, be it a purchase, a wedding, medical emergencies, or even a trip abroad. However, personal loans tend to have a very limited borrowing cap compared to other purpose-specific loan types.

When it comes to personal finance, loans will also pay a key role in proper financial management. Loans are a mode of quick injection of funds into our wealth management cycle. How to utilize the loan funds to generate a higher yield to cover up the loan interest and loan repayment is in the skills of the borrower, and we are here to help.