A loan is generally defined as a loan that individuals or institutions borrow an amount of money to repay over a specified period of time along with interest. It is something that helps meet various personal or business needs.
What is a loan?
A loan is a loan that you take from an NBFC or a bank with the promise to repay it within a specific period. The lender decides a fixed interest rate, which you have to repay along with the principal within a specific period.
Let's take a look at the different types of loans available in India:
There are primarily two types of loans available in India. One is a secured loan and the other is an unsecured loan. Let's read about these two types of loans in detail
| Secured Loan | Unsecured Loan | |
| Collateral | Needed | Not Needed |
| interest rate | Low interest rate | High interest rate |
| Example | Home loan, gold loan, loan against land, vehicle loan etc. | Education loan, credit card, etc. |
Secured Loan
Home Loan
A home loan is a secure financing option that provides funds to buy or build a house of your choice. The types of home loans available in India are:
- Land Purchase Loan: To purchase land for your new home
- Home Construction Loan: To construct a new home
- 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 to give your new home a fresh interior
When purchasing a new property/house, the lender will require you to make a down payment of at least 10-20% of the value of the property. The remaining amount is financed. The loan amount disbursed will depend on your income, its stability, and current liabilities.
Property Loan (Loan Against Property LAP)
Property Loan is one of the most common forms of secured loan. You can pledge any residential, commercial, or industrial property to obtain the required funds. The loan amount disbursed will be equal to a certain percentage of the value of the property. This may vary from bank to bank.
Some lenders may offer an amount equivalent to 50-60% of the value of the property, while others may offer an amount closer to 80%. This can be used to meet personal life goals such as children’s higher education or marriage. Businesses often use property-secured loans for business expansion, research and development, and product development.
Loans against insurance policies
Loans against your insurance policy are also available in India. However, keep in mind that not all insurance policies are eligible for this. Only policies with maturity value, such as endowment and money-back policies, are eligible for loans.
അതിനാൽ, മെച്യൂരിറ്റി ആനുകൂല്യങ്ങളില്ലാത്തതിനാൽ നിങ്ങൾക്ക് ഒരു ടേം ഇൻഷുറൻസ് പ്ലാനിൽ നിന്ന് വായ്പ ലഭിക്കില്ല. കൂടാതെ, റിട്ടേണുകൾ സ്ഥിരമല്ലാത്തതും വിപണിയുടെ പ്രകടനത്തെ ആശ്രയിച്ചിരിക്കുന്നതുമായതിനാൽ യൂണിറ്റ്-ലിങ്ക്ഡ് പ്ലാനുകളിൽ നിന്ന് വായ്പകൾ ലഭിക്കില്ല. സറണ്ടർ മൂല്യം നേടിയതിനുശേഷം മാത്രമേ നിങ്ങൾക്ക് എൻഡോവ്‌മെന്റ്, മണി-ബാക്ക് പോളിസികളിൽ നിന്ന് വായ്പകൾ തിരഞ്ഞെടുക്കാനാകൂ എന്നതും ശ്രദ്ധിക്കുക. മൂന്ന് വർഷത്തേക്ക് തുടർച്ചയായി പതിവായി പ്രീമിയങ്ങൾ അടച്ചതിനുശേഷം മാത്രമേ ഈ പോളിസികൾക്ക് സറണ്ടർ മൂല്യം ലഭിക്കൂ.
Gold Loan
According to a KPMG report, the organised Indian gold loan industry is expected to reach Rs 14 lakh crore by 2029 due to flexible interest rates offered by financial institutions. For a gold loan, you need to pledge gold jewellery or coins as collateral. The loan amount sanctioned will be a fixed percentage of the value of the gold pledged. Gold loans are generally used for short-term purposes and have shorter repayment tenures compared to home loans and property-secured loans.
Loans secured by mutual funds and shares
Mutual funds can be pledged as collateral for a loan, which is a popular way to create long-term wealth. You can pledge equity or hybrid funds to the financial institution to avail the loan. To do so, you need to write to your financier and execute a loan agreement. Typically, you will get up to 60-70% of the value of the units pledged as a loan.
Loans on Fixed Deposits (FD Loans)
A fixed deposit not only offers a guaranteed return but also comes in handy when you need a loan. The loan amount can go up to 70-90% of the value of the FD. However, keep in mind that the loan tenure cannot be longer than the tenure of the FD.
Vehicle Loan
Vehicle loans are designed for purchasing cars, bikes or commercial vehicles. In this case, the vehicle itself serves as collateral. That is why it is a secured loan. Borrowers can get flexible tenures and competitive interest rates depending on their credit score and loan terms.
Unsecured Loan
Personal Loan
Personal loan is one of the most popular unsecured loans that offers instant cash. However, since personal loan is an unsecured financing method, the interest rates are higher than secured loans. You can avail this loan at a relatively low interest rate if you have a good credit score and a high and stable income. The money obtained from this loan can be used for any immediate or unexpected needs. Like any other loan, you have to repay it as per the terms set by the lender.
Short Term Business Loan
Another type of unsecured loan is a short-term business loan. It can be used for expansion of various establishments and for day-to-day expenses.
Education Loan
Education loans provide financial assistance for higher studies that covers 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, from everyday expenses to emergencies. They are unsecured, and come with a fixed credit limit and high interest rates. Responsible use helps boost credit scores.
Depending on your credit score, income, and other eligibility requirements, the interest rate and term of the loan may vary. Secured loans are generally more popular because they are backed by collateral and have lower interest rates than unsecured loans. Unsecured loans do not have any form of collateral security, which leads to higher interest rates. However, don’t just consider the interest rate when applying for a personal loan. You should also consider the loan approval process, documentation, stamp duty, and other factors when applying for a loan.
