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 fulfill their monetary needs people borrow corporate and non-corporate loans from banks.
The Right Choices
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 fulfill their monetary needs which further results to fulfill even their basic needs. Choosing the right slick cash loan is essential here.
Let’s understand this with an example
For 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 installments 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.
During Inflation
Inflation generally occurs when there is growth in the supply of money in the economy. As a result, the price for goods & services increases, resulting in a higher inflation rate.
Inflation is the condition where there is a general increase in the prices of goods and services in the economy. This results in a decrease in the purchasing power of consumers. In this condition, a lot of money is circulated chasing only goods.
During Deflation
Deflation is the state when the pricing of goods and services significantly drops. The condition is serious as this may affect the economy negatively. To control the situation, the government reduces the interest rates on loans and deposits. This limits savings and attracts people to take loans which contributes to the economy again.
Investment Debt
You must be wondering what it is about and how it contributes to the economy?
An entrepreneur opts for a business loan to maintain the cash flow of his business, pay staff & to buy inventories.
Consumption Debt
Consumption loans are totally different from an Investment debt as it doesn’t have the potential to grow money from debt on an individual basis but can contribute to the economy. A travel loan or a personal loan can be taken as an example of consumer debt. Here an individual takes an advance from the bank and utilizes it in the present and promises the bank to repay it in the future. Since future utilization has been utilized at present, an individual needs to make up for it by offering future efficiency.