What are the Different Types of Loans Available in India?

What is a Loan?

A loan is an amount borrowed from a financial organisation to be repaid in monthly installments within an agreed period. They are designed to help address expenses and bridge the gap you may experience in terms of funds. Therefore, getting acquainted with all the different types of loans is important before you avail of any one of them.

The different types of loans in India are classified based on two factors, namely secured and unsecured. Read on to learn about them.

Types of Loans in India 

From addressing medical, social, or even personal expenses, loans have proved to be an essential tool in times of financial contingencies. In present-day India, those in dire need of funds will have several loan options to select from, to best address their financial needs. Knowing the different types of loans available in India is not just for academic purposes; should you ever need a specialised loan – you will know which to pick to maximise the benefits of the credit tool.

The two broad categories of loans available in India are the following:

• Secured Loans
• Unsecured Loans

Types of Secured Loans

Secured loans are sanctioned against collaterals or a security. Borrowers are expected to offer their assets as collateral to the financial organization they are borrowing from to receive the loan amount they desire. These assets stand as security for the lender if the borrower fails to repay the loan.

Following are some of the popular secured loans you can avail of:

1. Loan Against Property

   A Loan Against Property is popular and oft availed. Borrowers pledge their property against which they stand to receive sizeable sanctions that they can use to address any expense of their choice.

2. Home Loan

   Home Loans focuses on helping you purchase a property by extending sizeable funds. In the case of a Housing Loan, the collateral in question is the property being purchased. The ownership of the property is transferred to the borrower upon full repayment.

3. Gold Loan

   Gold loans allow borrowers to pledge gold jewellery in exchange for funds. Typically, a gold loan is utilised to meet short-term needs.

4. Loan Against Mutual Funds and Shares

   Loans against mutual funds and shares offer similar provisions, where one uses their mutual fund investments or shares as loan collateral.

5. Loans Against Fixed Deposit

   Your fixed deposit can also come to your rescue when you want to take a loan from any financial organization. The loan can be 70–90% of the fixed deposit value, and the loan tenor will last as long as the fixed deposit tenor lasts.

Types of Unsecured Loans

Unsecured loans do not require any collateral for loan approval and disbursal. Such loans are extended based on one’s financial history. So, if you ever want this type of loan, you must ensure that your credit profile is healthy.

1. Personal Loan

   A personal loan can be availed of to cater to your individual needs. Due to its vast range of usage and no end-use restrictions, a personal loan is one of the most popular unsecured loans. However, given its unsecured nature, the interest rate for a personal loan is relatively high compared to secured loans.

2. Business Loans

   Short-term business loans are quite common in India and come in different forms, such as loans for traders, manufacturers, service enterprises, working capital loans, and machinery loans. These are designed to help business owners fulfil their urgent financing needs.

3. Education Loans

   Education loans act as monetary assistance for students who need to meet expenses associated with higher studies. The student is the primary borrower, while the parents or guardians serve as the co-applicants.

4. Vehicle Loans

   Vehicle loans enjoy immense popularity in India, given the demand for automobiles in the country. These loans come at competitive interest rates with easy-to-meet parameters.

5. Agriculture Loans

   Agriculture loans are extended to those who seek to fund their seasonal farming activities, such as the purchase of land or machinery, horticulture projects, and more. The repayment tenor and eligibility criteria differ depending on the end use of the funds. 

Read Also: Hybrid Flexi Loan v/s Personal Loan