Loans, Types of loans, Secured loan, Unsecured loans, Home loans, gold loans, personal loan, flexi loan, education loan, vehicle loan
A loan refers to the lending of money which is provided by one or more people, financial organizations or other entities to another person, organization etc. The borrower incurs a debt i.e borrows the money and is liable to pay interest on the money borrowed until it is repaid along the principal amount borrowed. Read more to know more about loans and different types of loans available in India.
A loan is money borrowed by one or more people, financial organizations or other entities with a promise to repay the loan with the amount of interest applicable within a specific period of time. The lender will decide the interest rate that you must pay on the borrowed money along with the principal amount borrowed. Let’s understand the different types of loan available in India.
Types of Loans Available In India
There are several types of loans available in India which can be classified into categories based on the purpose of the laon. Below mentioned are the categories of loans based on there purpose:
1. Secured Loans: Secured loans refer to those loans which require collateral where the borrower has to pledge an asset as security for the money they are borrowing from the lender. This way, if the borrower is unable to repay the loan, the lender still has some means to get their money back. The rate of interest for secured loans is less as compared to loans which do not require collateral. Here are some secured loan options available in India:
● Home Loan
● Loan Against Property (LAP)
● Loan Against Insurance Policies
● Gold Loans
● Loan Against Mutual Funds and Shares
● Loan Against Fixed Deposits
2. Unsecured Loans: Unsecured loans refer to those loans which do not require collateral. Here, the lender gives the borrower money on the basis of their credit score and history. If the borrower has a good credit history he/she will be able to avail these types of loans. Due to no requirement of collateral, interest rates of unsecured loans are high. Here are some unsecured loan options available in India:
● Personal Loan
● Short-Term Business Loan
● Education Loan
● Flexi Loan
● Vehicle Loan
Secured Loans Below mentioned is a list of loans that require collateral:
1. Home Loan: A home loan or a house loan simply refers to the money borrowed from a financial institution or bank to purchase a home. People usually take a home loan to purchase a house, flat or plot of land to construct a house, renovate or repair the existing house. Under home loans the rate of interest can be fixed floating or partly fixed and partly floating. Under this loan, the property is mortgaged to the lender as a security until the loan is repaid. Below mentioned are types of home loan available in India:
● Land Purchase Loan
● Home Construction Loan
● Home Loan Balance Transfer
● Top Up Loan
2. Loan Against Property (LAP): This is one of the most common types of loans available in India. Under this loan, the borrower mortgages his/her property which can be residential, commercial or industrial property to be able to avail the funds required. The loan amount which is handed out to the borrower will be equivalent to a certain percentage of the property’s value.
3. Loan Against Insurance Policies: Yes, loans against insurance policies can be availed. However, not all types of insurance policies provide a facility to avail loan against the policy. Selective insurance policies provide loans against policy facilities such as endowment and money back plan as they have a maturity value. You can apply for a loan against policy under endowment and money back policies, once you have acquired the surrender value.
4. Gold Loans: Under a gold loan the borrower is required to provide gold jewelry or coins as collateral to be able to avail the funds required. The sanctioned loan amount is a certain percentage of the provided gold. These loans are generally opted to fulfill short-term requirements and have a short repayment period as compared to home loans.
5. Loan Against Mutual Funds and Shares: Mutual funds, equity and hybrid funds can be used as a collateral to avail loans from financial institutions. To avail a loan against mutual funds, equity and hybrid funds, the borrower is required to write to the financier and execute a loan agreement. The financier will then write to the mutual funds registrar and put a hold on the number of units to be used as a collateral.
6. Loan Against Fixed Deposits: Fixed deposits can also be used as collateral to avail loan. The borrower can avail loan amount for upto 60-70% of value of the units pledged as collateral and varies depending on different lenders. It shall be noted that the loan tenure shall not exceed the fixed deposits tenure.
Unsecured Loans
Here is a list of type of loans that do not require collateral:
1. Personal Loan: Personal loan is the most common type of loan opted because it offers instant liquidity. Since personal loans are a type of unsecured loan because it is approved and provided by the lender after checking the credit score or history of the borrower, the interest rate of this type of loan is higher. Personal loans can be used for managing immediate expenses such as wedding expenses, vacation or international trip, home renovation, child’s higher education etc.
2. Short-Term Business Loan: A short term-business loan refers to money borrowed to fulfill urgent or short- term business requirements. This type of loan can be used to fulfill business expenditures such as working capital requirements, business expansion, managing cash flow, purchasing equipment, covering operational expenses etc.
3. Education Loan: Under education loans, the course’s basic fee and other expenses such as accommodation, exam fee etc. is covered. The primary borrower is the student while parents, siblings or spouse are considered co-applicants. Education loans can be taken for full-time, part time or vocational courses and the student must repay the loan once the course is finished.
4. Flexi Loan: Flexi loans are very similar to overdraft facilities provided by the banks. To avail flexi loans the borrower can pay the required loan amount from the credit limit pre-approved by the bank and pay interest only once the loan amount is used. Under this loan you can prepay the loan according to your convenience.
5. Vehicle Loan: A vehicle loan refers to two wheeler/four wheeler loans that helps an individual to purchase their dream vehicle. Vehicle loans can be opted while purchasing a new vehicle or used one. This loan is also provided on the basis of the borrower’s credit score, ratio of debt to their income, loan tenor etc.
To Conclude
There are several types of loans available in India. A loan basically refers to the lending of money which is provided by one or more people, financial organizations or other entities to another person, organization etc. Different types of loan to different kinds of requirements of an individual. Above mentioned information will help you understand about the purpose of different types of loans available in India.