There are different types of loans in India that you can apply for depending on your needs. The simplest definition of a loan is an amount of money borrowed for a specified period. The amount borrowed must be repaid within a predetermined period. Interest will continue to add to the amount repaid until it is paid off. All loans in India serve one purpose of helping you buy what you need. These are great ways to fund planned or unplanned expenses. Purchasing a home or car, getting married, starting a business, education, and many other purposes. Therefore, it is so important to understand the different types of loans available in the country.
All loans are divided into secured and unsecured loans and further classified into various types according to their purpose.
Table of Contents
- What are the types of Loans in India?
- Types of Secured Loans
- Types of Unsecured Loans
- Further Readings:
- FAQs: Frequently Asked Questions
What are the types of Loans in India?
It is broadly categorized into the followings:
- Secured Loan
- Unsecured Loan
A secured loan is a loan that requires some sort of collateral to be provided as collateral for the loan. Collateral can be anything from jewelry to real estate. If you don’t repay the loan, the lender can take the collateral you pledged and sell it to recover the principal and interest debt.
The loan amount varies according to the value of the security and the interest rate is fixed. These types of loans are fixed-rate loans and are not adjustable.
The main advantage of this type of loan is that it is easy to obtain. All the borrower must do is provide proof of ownership of the property or thing pledged as collateral, which usually takes less than a few minutes. This type of loan is a great way to get started without making a large payment, as the loan amount is typically less than what you would pay for a mortgage.
Unsecured loans are the most common loan type in India. The term “unsecured” refers to the collateral or lack of collateral to obtain these loans. Simply put, this type of loan is granted without collateral and does not require you to pledge your property or other assets as collateral for the loan.
To take advantage of such a loan, it must be easy to repay the loan. You can get an unsecured loan from your bank or another financial institution such as a non-banking financial company (NBFC). Interest rates on these loans range from 8% to 24% per annum depending on the lender.
These loans help you borrow money when you need it most. It’s especially useful when you need to buy a car, pay off debts like rent or utilities, or need quick cash in an emergency.
Types of Secured Loans
The followings are the types of secured loans:
A home loan or mortgage is a type of financial instrument used to finance the purchase of real estates such as a home, apartment, or house. The buyer repays the loan with interest and monthly payments. Homebuyers receive mortgages of up to 90% of the property value. The remaining amount is called a deposit. These loans usually have a long-term and interest rates start at 8.30%.
Loan Against Property
It is a type of secured loan where the borrower agrees to use their home as collateral for the loan. Lenders can accept mortgages as collateral for loans, whether the property is a home or an investment property. The lender will then lend you the money you need. The amount you can borrow is limited by the value of your home.
In most cases, this type of loan has a higher interest rate than other loans because it is secured by the home. However, these interest rates are much lower than paying with unsecured loans (like credit card debt) and usually include tax benefits.
Gold Loans are a type of secured loan that can be obtained using Gold. This a good option for those who have their own gold and want to use it as collateral for a secured loan. These loans are generally used for short-term needs and have shorter repayment terms compared to other secured loans such as mortgages and real estate loans.
Loans Against Fixed Deposits
Some banks are even allowed to take out loans against deposits, and in most cases, the value will be close to that of an FD account. Banks understand that FDs are a safe investment, so lending against fixed deposits is not a problem.
Loan Against Insurance Policies
Consider using your insurance policy as collateral for your loan if you are in deep trouble or some sort of medical emergency.
Loan Against Mutual Funds and Shares
You can borrow money using mutual funds and stocks. This allows you to leverage your investments, access your funds, and pursue your life goals. If you choose to borrow against these securities, you have access to many repayment options and no upfront fees.
Types of Unsecured Loans
The followings are the types of secured loans:
A personal loan is a short-term loan that can be used to cover expenses not covered by other types of loans. Personal loans are typically used when you need money in an emergency, such as: To pay things like medical bills or credit card debt.
Personal loans can have high-interest rates with low monthly payments. Interest rates are set by lenders based on how much you borrow, how long you must repay, and other factors. A good credit score makes it easier to get a personal loan.
Education loans are short-term, unsecured loans that can be used to cover the costs of a college education. Education loans can be borrowed for educational purposes such as: For bachelor’s, master’s, or non-specialized courses.
Education Loans are becoming more popular because of their convenience and flexibility. It can be used for post-secondary tuition, living expenses, and other incidental expenses. Interest rates for this type of loan range from 9% to 14%.
The basic idea of a vehicle loan is to have enough money to buy a new or used vehicle. The amount a person can borrow is determined by their credit rating, income, and the interest rate set by the lender. These loans are considered unsecured and therefore have the highest interest rates and fees.
Credit Card Loans
Credit cards are one of the most convenient ways to pay for your purchases. Accepted almost everywhere, even when traveling abroad. One of the most notable perks is the excellent rewards system that allows you to earn points and miles on your purchases and redeem them for rewards and discounts on future travel. Using a credit card means borrowing money from the bank. Obviously, this type of loan has its drawbacks. You must repay the purchase price in full at the end of each billing period. Otherwise, you may face serious financial problems.
It is important to understand that credit card borrowing carries high-interest rates. If you don’t pay your credit card bills on time, interest will pile up and put a huge strain on your budget.
Short-Term Business Loans
Short-term business loans are available to businesses facing temporary liquidity crises. These loans are for up to one year and the interest rates are flexible and negotiable. It can be used to pay for working capital such as Purchasing Inventory or Equipment. Short-term business loans are generally unsecured and have no collateral.
Consumer Durable Loans
As the name suggests, this loan will help you purchase things like electronics and home appliances. The amount you can borrow depends on the lender. No deposit is usually required but ranges from Rs.5,000 to Rs.5 Lakh. Some lenders offer almost 0% interest with instant approval, minimal paperwork, and no down payment required.
A Flexi loan is an unsecured loan that allows you to withdraw money at any time from your approved limit. There is no limit to the number of transactions that can be performed, and you are free to withdraw cash from your limit without any restrictions or additional costs. Interest on Flexi Loans should only be paid when the amount is exhausted.
Loans are an important resource that individuals can use to achieve various goals. Whether you’re buying a home, starting a small business, or financing a new car, a loan can be an invaluable resource. Knowing the available types of loans in India will help you if you need unbudgeted funds.
Click on the below links to read relevant articles.
Types of Loans in the US
FAQs: Frequently Asked Questions
What Is Loan?
A loan is a receipt of funds from a bank, friend, or other financial institution that you promise to repay in the future, along with principal and interest. The principal is the amount borrowed and interest is the fee charged when borrowing.
What is a home loan and how does it work?
A mortgage also called a home loan, is an amount borrowed by an individual, usually from a bank or money lending company. The borrower must repay the loan amount with interest in simple monthly installments (EMI) over a period of 10 to 30 years depending on the type of loan.
What is a common loan?
A common loan in American homes is a mortgage that is taken out to purchase real estate. Credits can be granted to individuals, businesses, and governments. The main idea behind trading is to obtain funds to increase the total money supply. Interest and fees are the sources of income for lenders.