Income vs. Credit
Income:
Money earned from salaries, wages, or other sources.
It is yours to keep and spend.
Credit/Loan:
Borrowed money that must be repaid, not considered income.
Loan repayments are expenses that reduce available funds.
When to Borrow:
Appropriate Situations: Borrow when expenses exceed income, during emergencies, or for business investments.
Avoid Consumption Loans: Don’t borrow for non-essential expenses like festivals, weddings, or luxury items. Use savings or income for these.
Avoid Debt Trap: Borrowing for consumption can lead to a cycle of debt if not managed properly.
Grievance Redressal
Banks:
Regulated Process: Each bank has a Grievance Redressal Officer for disputes.
Further Escalation: Unresolved issues can be taken to the Banking Ombudsman.
Informal Lenders:
No Formal Mechanism: Lack of regulation leads to no official grievance process or transparency.
Loan Approval Process
Banks vs. Money Lenders:
Banks: Conduct thorough checks to ensure the proper use of funds, which may take longer.
Benefits: Offers transparency and protection through documented procedures.
Types of Bank Loans
Loans are available for housing, education, agriculture, business, and personal needs.
How to Obtain a Bank Loan
Submit Application: Specify the loan purpose.
Bank Evaluation: Assessment of repayment ability.
Approval and Repayment: If approved, repay with interest in installments.
Cost of Borrowing
Interest Rates:
Transparent Costs: Interest rates are publicly displayed and standardized for similar customers.
Interest as a Cost: Represents the expense of borrowing money.
Loan Collateral
Guarantee Requirements:
Small Loans: Often no collateral needed.
Large Loans: May require assets or collateral for security.
Importance of Repayment
Why Repay:
Bank Stability: Ensures banks can repay depositors and lend to others.
Future Credit: Repayment history affects future loan eligibility.
Non-Repayment Consequences:
Legal Actions: Banks may seize collateral or take legal steps to recover unpaid loans.
*The information in this document has been adapted from articles and posters available on https://www.rbi.org.in/FinancialEducation/Home.aspx . The original articles can be accessed directly for more comprehensive insights.
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