Why Are Loans Important to the Economy-Importance of Loans in Todays Life

By | February 23, 2021

Relation B/w Loans & Economy

The banking system has an important role in the modern economy. The reason is banks act as a bridge between those who have surplus money and those who are facing money shortage for any of their needs.

Some want to invest, and hence keep their money in the bank in forms of FDs, RDs and even in savings accounts while the others who are facing money crises come to the bank to borrow money in the form of loans. Some borrow for their business needs while others do it for their personal needs. In short to fulfil their monetary needs people borrow corporate and non-corporate loans from banks.

Hence, banks act as the biggest support for most industrialists, small businessmen and even for salaried individuals. This results in Bank loans facilitating commerce.

The market is wider and hence banks have extended retail loans to unsecured personal loans, home loans, consumer durables as well as to farmers seeking farm credits. This helps borrows to fulfil their monetary needs which further results to fulfil even their basic needs.

Let’s understand this with an example- For a home loan buyers purchasing a house, at the beginning of their carrier would have been impossible as purchasing a house requires a huge amount which one can only afford after saving for a minimum of 20 years. But with the help of home loans, one can get their dream home just by paying a small amount as down payment and rest can be paid in instalments for a flexible tenure of 20 to 30 years. On the same hand lending personal loans has made life easier for the common masses who used to face cash crunches now and then. It not only helps them in emergencies to meet their requirements but also helps them to meet their wants.

On the other hand, individuals whether salaried or businessmen, middle classes or Corporate institutions and even governments have their deposits kept for their operating expenses and development works. Doing this makes them earn interest on their money and get the same by keeping their money in the banks in the form of FDs, savings Rd’s and so on.

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