How can one classify between loans in India? Here is a review of all types of loan available in India 2021 –
At some point in our life, the thought of availing a loan to steer out cleanout of a critical situation passes our mind. A loan is a remarkable product which allows and enables an end-user to make use of a good sum of money (which is not yours), for most of the things one might desire to do or in case of an emergency.
A loan is a simple transaction of money between the lender and a borrower, with an agreement of return within a pre-fixed time period. Herein, the lender decides the rate of interest applicable as a return for lending the funds added with the principal amount.
Let us now consider the basic factors that classify a loan between below categories:
- Requirement of a Security/Collateral/Guarantee against the loan amount
- The purpose behind availing a loan
Here, we will talk about the types of loan in terms of their requirement of collateral, and the purpose of a loan is specified by the name given to those products being offered as loans.
Loans in India can be categorized into two major categories on the basis of collateral required, they are:
- Secured Loans
- Unsecured Loans
These types of loans can majorly be described as the traditional loan, wherein security or collateral is offered against the loan amount being taken, and the value of the security/collateral majorly qualifies for the eligible loan amount. They are termed as ‘secured’ as in case the borrower of defaults, the lender can utilize the collateral and make-up for no return on the loan.
Types of Secured Loans are:
Home loans are in general the most preferred and avail secured loan, most people wish to build or buy their dream home and this makes it the first choice.
Under the home loans category, there are significant other products like Loan for Purchase of Land, Loan for Construction, Balance Transfer of Home Loan, Top-up Loan and others.
Loan Against Property
In terms of valuing collateral against a loan amount, the value of a property in your name might get you the best deals on any loan. The valuation of the property might vary across various lenders, as well the eligible loan amount against the security.
Most of the loans processed under this segment are used for commercial purposes. As they provide finance for a single vehicle or a fleet of vehicles with a certain percentage of the down payment with it. Individual buyers avail such loans to buy their dream car for their family. Most lenders use their existing credit history, monthly income and expenses.
In our country, Gold is still considered to be one of the prime assets that people wish to invest in. A Gold loan requires a borrower to provide coins, jewellery and biscuits as collateral and the loan amount is sanctioned as a certain percentage of the value of Gold.
A two-wheeler loan is availed to purchase a two-wheeler – bikes and scooters. If you don’t pay instalments on time and fail to repay the loan, you may lose your vehicle. Insurer will sell it to recover the loan amount.
Loan Against Shares & Mutual Funds
In terms of investments in the market, mutual funds are one of the most risk-free tools to invest, more so that the lenders consider it safe collateral and can lend almost 60-70% of the entire investment.
For Shares, most of the leading financial institutions have a wealth management arm which can assess the overall value of an investment in shares and amount of loan is equal to a certain percentage of the present value of shares.
Loan Against Fixed Deposits
A Fixed deposit is one of the most traditional ways of wealth creation which is still existent and often used. The eligible loan amount might vary between 70-90% of the overall investment and the tenure of the loan is as the tenure of the fixed deposit.
These types of loans are the ones that do not require collateral to be pledged for the loan. The lenders tend to check the creditworthiness of the borrower and take into account a few other factors, such as the monthly income, deposits and overall debt. The lender is at more risk of facing a default as the loan is not backed by a collateral, so they may end up charging a higher rate of interest.
Types of Unsecured Loans are:
These loans offer instant credit support to any borrower who is willing to provide a set of documents regarding their income and expenses. The rate of interest is the key in such loans as they are not backed by any security, they tend to cost more as compared to secured loans.
There are over 20 types of different personal loans to offer subjective to the end use of the funds. Most common personal loans are Wedding Loan, Loan for Bill Payment, Home Renovation Loan, Loan for Child’s Education, Loan for Medical Emergency and others.
Bank Overdraft or Short-Term Loans
For all such business units that require regular transactions in terms of buyers and suppliers or to manage daily expenses, many lenders provide unsecured small business loans. Most common type of these loans is: Working Capital Loans, Small Business Loans for MSME, Loans for Women Entrepreneur, Loan for Manufacturers and others.
Education is considered to be one of the largest investments in our entire life, and most often if we are looking for an ‘A’ Grade Institution it’s going to cost a lot to one’s pocket. Many financial institutions support an educational degree by offering full or partial support in paying the fees and bearing other expenses during the period of study.
With all types of customized loan offers, a borrower can make good use of funds to fulfil their existing wishes or for an emergency. In order to know more details regarding the overall documentation required and the eligibility criteria required to avail a loan, kindly visit Afinoz and read in detail.