A loan is generally defined as an amount of money borrowed by an individual or institution to be repaid with interest over a period of time. It can be used to meet a variety of personal or business needs.

What's the loan?

A loan is a loan that you buy from an NBFC or bank, promising to repay within a specific period of time. The lender determines a fixed interest rate, which you must pay with interest within a certain period of time.

Let's take a look at the different types of loans available in India:

There are two types of loans available in India. One is a secured loan and the other is an unsecured loan. Read more about these two types of loans.

	Secured Loan	Unsecured Loan
collateral	should	yes
Interest rate:Rate of interest	Low interest rate	HIgh interest rate
Example	Home Loan, Gold Loan, Loan Against Land, Auto Loan, etc.	education loan, credit card, etc.

Secured Loan

Home loan

A home loan is a safe and secure way to finance the purchase or construction of a home. The types of home loans available in India are:

• Loan to buy land for your new home.
• Loan to build a new house
• Home Loan Balance Transfer: Transfer the balance of your existing home loan to a lower interest rate.
• Top Up Loan: Can be used to renovate an existing home or make the latest interior for your new home.

When buying a new property / home, the lender will require you to make a down payment of at least 10-20% of the property's value. The rest is funded. The amount of the loan disbursed will depend on your income, its stability and current liabilities.

Loan Against Property (LAP)

A mortgage is one of the most common forms of secured loans. You can mortgage any residential, commercial, or industrial property to get the necessary funds. The loan amount disbursed will be equal to a certain percentage of the value of the property. These can be different amounts from bank to bank.

Some lenders may offer an amount equal to 50-60% of the value of the property, while others may offer an amount closer to 80%. It can be used to meet personal life goals such as children's higher education or marriage. Businesses use property loans for business expansion, research and development, and product development.

Loans using insurance policies

Loans using your insurance policy are also available in India. However, keep in mind that not all insurance policies are eligible for this. Loans are only available for policies such as endowment and money-back policies with a maturity value.

So, you will not get a loan from a term insurance plan as there are no maturity benefits. Also, loans cannot be availed from unit-linked plans as the returns are not constant and depend on the performance of the market. Also note that you can opt for loans from endowment and money-back policies only after acquiring the surrender value. These policies will get the Surrender Value only after paying the premiums regularly for three consecutive years.

Gold Loan

According to a KPMG report, the organised Indian gold loan industry is expected to reach Rs 14 lakh crore by 2029, driven by flexible interest rates offered by financial institutions. A gold loan requires you to pledge gold jewellery or coins as collateral. The loan amount sanctioned will be a fixed percentage of the value of the pledged gold. Gold loans are generally used for short-term purposes and have a shorter repayment tenure as compared to home loans and property-backed loans.

Mutual Funds and Equity Loans

Mutual funds can be pledged as collateral for a loan, which is a popular way to build long-term wealth. You can pledge equity or hybrid funds to the financial institution to get the loan. To do so, you need to write to your financier and execute a loan agreement. Generally, you can get up to 60-70% of the value of the units that you pledge as a loan.

Loans against Fixed Deposits (FDs)

A fixed deposit not only offers guaranteed returns, but can also be useful when you need a loan. The loan amount can come up to 70-90% of the value of the FD. However, note that the loan tenure should not be more than the tenure of the FD.

Vehicle loan

Auto loans are designed for the purchase of cars, bikes, or commercial vehicles. In this case, the vehicle itself acts as collateral. That's why it's a secured loan. Borrowers get flexible tenures and competitive interest rates depending on their credit score and loan terms.

Unsecured Loan

Personal loan

Personal loans are one of the most popular unsecured loans that offer instant money. However, since a personal loan is an unsecured financing method, the interest rates are higher than secured loans. If you have a good credit score and a high and stable income, you can get this loan at a relatively low interest rate. The money obtained from this loan can be used for any immediate or unexpected purpose. Like any other loan, you must repay it according to the terms set by the lender.

A short-term business loan

Another type of unsecured loan is a short-term business loan. It can be used for expansion and day-to-day expenses of various organisations.

Education Loan

Educational loans provide financial assistance for higher studies that cover tuition fees, accommodation, and related expenses. These loans offer flexible repayment options and moratorium periods to support students during their education.

Credit Cards

Credit cards offer a revolving line of credit for a variety of expenses ranging from daily expenses to emergencies. They are unsecured and come with a fixed credit limit and high interest rates. Responsible use helps to increase credit scores.

Depending on your credit score, income, and other eligibility requirements, the interest rate and term of the loan may change. Secured loans are generally more popular because they have lower interest rates than unsecured loans. Unsecured loans do not have any collateral security, which leads to higher interest rates. However, don't just consider the interest rate when applying for a personal loan. The loan approval process, documentation, stamp duty, and other factors should also be considered when applying for a loan.