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Types of Loans in India

Submitted by admin on August 16th, 2024

Loans in India are divided into two types, secured loans and unsecured loans.

Secured loans are those which are offered against a security, and its types are:

Home Loans

This is a loan where the lender pays a certain amount, so that the borrower can purchase a house. The borrower then has to pay it back in the form of monthly instalments which are known as EMIs (Equated Monthly Instalment), which is then calculated according to amount borrowed, rate of interest and repayment tenure, which is generally 20 years or more. Only those individuals between the ages of 18 and 65, who have a regular stable income and a good credit score are eligible for a home loan, which they can get on providing proof of identity, age and income.

Gold Loans

This loan is the amount lent on the quantity of gold a borrower places as collateral. Eligibility criteria completely depend upon the lender, and other than the documents generally required, a proof of ownership is mandatory. Since, gold is used as collateral, the rate of interest is low, and EMI and repayment tenure are negotiable.

Vehicle loans

This loan can be availed by individuals as well as businesses, and the repayment tenure, interest rate and eligibility depend greatly on the type and model of vehicle being purchased. Having a great credit score or a well-paying job or business makes it easier to get this loan.

Loans against property

Loan against property also known as LAP, where a property owner can use it as a collateral to get a loan, where the loan amount, rate of interest, and repayment tenure are dependent on the market value of the property. Loans are issued after checking property deed and financial stability of borrower.

Loans against securities

LAS or Loan against securities, allows a person to borrow money without having to give up their investments. Once the lender approves of the types of securities, and creditworthiness of a borrower, a credit limit is approved. Interest, EMI and repayment tenure are dependent upon money withdrawn for use.

Loans against fixed deposits

As the name suggests, in this loan, a borrower uses their fixed deposit (FD) as a collateral, to obtain a loan. The rate of interest varies between banks, ranging from 6% to 10%, and a loan will only be provided if you have a FD in the specific bank.

Working capital loans

Working capital is the money business use to run their daily operations, and this loan is wanted, when a business has cash flow problems. Only business which have been in operation for more than 3 years can apply and the rate for interest for this loan is fairly high ranging from 12% to 30%, especially for short term loans which range between 6 to 12 months.

Unsecured loans are amounts which are lent only based on the current income or prospective income of the borrower.

Personal loans

Personal loans do not require a collateral and are therefore offered on the basis of employment status, credit score and a regular stable income. The rate of interest, is higher since here is no collateral and falls within 10% to 25% range.

Short term business loans

A short-term loan for business is for a loan with repayment tenure from 3 months to 3 years, and business which have been operational for even one year are eligible to apply. Some lenders might also ask for a business plan on how to improve the business’s financial situation if the loan is granted.

Education loans   

Education loans in India for higher studies are flexible, especially if students are enrolling themselves in well-known educational organizations. Students are given plenty of time, in some cases up to 15 years to pay back the amount, and sometimes with a grace period so that they can find stable jobs without having to worry about repaying the loan.

If you wish to gain more in depth knowledge about loans, contact out team at Daily Finserv and get any assistance you need from financial experts.