What is Definition of Borrower?
A borrower is an individual or a business entity that borrows capital from a lender for a specific time at a pre-determined interest rate. While applying for a loan, a borrower and a lender sign an agreement agreeing on all the terms and conditions set by the lender. A borrower can approach various financial institutions such as private or government banks, Non-Banking Financial Institutions (NBFCs), etc. A borrowed amount can be used for personal purposes or investment depending upon the financial requirement. According to specific financial needs, a borrower can apply for a Personal Loan, Business Loan, Professional Loan, Loan Against Property, Pre-Owned Car Loan, Machinery Loan, Medical Equipment Loan, etc. Before applying for a loan, you must meet the minimum requirements, such as a minimum credit score of 750 or above, a list of all the required documents, etc. As a borrower, it is advisable to read all the terms and conditions before signing the agreement.
Can there be more than one borrower?
Yes, there can be more than one borrower, popularly called a co-borrower. A co-borrower is generally involved in a loan such as a mortgage loan where both borrowers are equally responsible for repaying the loan on time. A co-borrower is an individual who shares similar principal responsibilities as a borrower. A co-borrower is beneficial when one of the borrowers is not qualified for a loan. Moreover, having multiple borrowers helps increase the principal amount on the loan. A co-holder plays an essential role if the borrower doesn’t match the right profile for borrowing. In case there are several borrowers, there can also be co-holders. Please note that a co-holder is not a guarantor. A guarantor is someone responsible if a borrower cannot repay the loan on time.
Differences Between Borrower and Lender
A lender and a borrower are two principal parties involved in the process of borrowing, where a borrower applies for a required loan amount at a specific interest rate for a specified time. A borrower borrows money from a lender for personal and business purposes. As a borrower, you can avail of loans from financial institutions such as private banks, government banks, Non-Banking Financial Institutions (NBFCs), etc. A lender can be any financial institution offering money to a borrower based on their requirements. A lender provides various types of loans such as Personal Loan, Business Loan, Professional Loan, Loan Against Property, Medical Equipment Loan, etc.
Moreover, a lender offers two types of loan-secured and unsecured loans. In the case of a secured loan, a borrower needs to provide collateral as security. A secured loan includes a home loan, a loan against property, a vehicle loan, a gold loan, etc., where a borrower needs to provide collateral. A collateral can be your personal property or business asset, which the lender values at the current market rate. On the other hand, an unsecured loan doesn’t require collateral to avail of a loan; for example, a Personal Loan is a type of unsecured loan where you can avail a Personal Loan without providing any collateral.
To conclude
To conclude, borrowers must understand their responsibilities while applying for a loan. A borrower must plan repayment using the EMI calculator. If planned properly, a loan can lead to a debt trap. The EMI calculator is one of the tools used to calculate your monthly EMIs according to your desired loan amount, pre-determined interest rate, and loan tenure. As a responsible borrower, you should always plan your EMIs to help you maintain your credit score and avoid debt. A credit score of 750 or more is considered good. Making regular repayments on time enables you to maintain your credit score. A good credit score helps you avail your desired loan amount with favorable terms and conditions. On the other hand, if you don’t repay your loan on time, it negatively impacts your credit score. To avoid a low credit score, you must repay on time and avoid any delays.
