Different Types of Loans

 

Banks, NBFCs, and other financial institutions help people in financial crises by providing them with loans. In general words, Loans is a legal agreement between a lender (bank, NBFCs, other lending firms) and a borrower in which a financial institution gives money with the promise from the borrower that he or she will repay the borrowed amount with interest. There are many financial institutions available in India that are giving loans to eligible borrowers.

The eligibility criteria for the loans are set by the lending institutions, it includes the CIBIL Score of the borrower, Banking statements, income proof, Salary Slip, and KYC Documents. There are only three components of loans namely, principal, borrowed amount, and interest rate and these are the focus points that must be considered before applying for any loan. Before going forward with the eligibility criteria for the loans, let us understand the types of loans. The article below shall explain the types of loans available in India.

Types of Loans in India

Based on the security provided by the Borrower.

Secured Loans

Secured Loans are the type of loans that need security/ collateral against which the loan shall be approved by the banks. These types of loans usually have lower interest rates and have longer tenure. Home loans, Loan Against Property, and Car Loans come in the category of Secured Loans. The interest rate of secured loans starts from 8.5% P.A. A person who is thinking of taking a loan or having a property on your name can take the secured loans.

Unsecured Loans

Unsecured Loans are the ones where the borrower does not need any collateral for the approval of loans. These loans are called signature loans as these can be approved on the basis of KYC Documents, Bank Statements, and Income Proof of the borrower. These loans usually have higher interest rates as compared to Secured Loans. The borrower can either opt for the floating interest rate or fixed interest rate to avail of these loans. Unsecured Business Loans, Instant Personal Loans, Unsecured Working Capital Loans fall in the category of Unsecured Loans.

Based on the Purpose of the Loans

Education Loan:

A loan taken for the purpose of Education is an Education Loan. A student can avail of this loan easily by providing the admission documents to the bank and other required documents.

Business Loan

A financial aid taken for business purposes is called a business loan. A business loan can help you to accelerate the growth of your business. The interest rate on business loans is different from different banks.

Home Loan

A Home loan is the financial assistance taken by the bank to buy a home. A home loan is a secured loan that needs collateral to be presented in the bank. It has a lower interest rate.

Car Loan

A Car loan is the one which is taken to buy a car. A car has become a need hence, it is convenient to take a car loan and pay the amount for a car in EMIs.

Personal Loan

A personal loan can be taken for any personal reason. You just need to pass the eligibility criteria for availing of the loan. The interest rate for the personal loan depends upon bank to bank.

Working Capital Loan

This loan is taken to ensure the smooth running of the business. The working capital loan can be availed by the business owner for expanding the business, equipment purchasing, etc.

Based on the pledged Assets

Gold Loans:

Gold loans are frequently made available by banks and other financial institutions in exchange for the borrower’s jewelry, gold bars, or gold coins. They evaluate the gold’s precise value and give the borrower a sum of money. It is advised that a borrower pay the monthly installments on schedule in order to avoid the organization taking the gold.

Loans against pledged assets:

These are similar to loans secured by gold pledges. To collect loan amounts from banks and NBFCS, the borrower must give the bank a pledge of their FDs, mutual funds, and insurance. To reclaim the assets, the borrower must make timely installment payments.

Conclusion

The above article shall brief you on the different types of loans. Taking a loan was a strenuous task but with time and technology, it has become easier. Now there are many fintech companies, banks, and NBFCs that are providing loans digitally. Get the loan based on your needs and demands and get it approved instantly.