A loan is a sum of money borrowed for a specific period. The borrower is responsible for repaying the interest calculated on the borrowed principal amount. Loans can be used for a variety of purposes in today's world. It can, for example, help a startup or purchase appliances for a newly purchased home.
Let us look at the various types of loans available on the market and the features that make these loans valuable to customers. In India, loans are divided into two categories: secured and unsecured loans.
In today's world, loans can be used for a variety of purposes. It can be used to start a business or to buy appliances for your newly purchased home. Let us discuss the various types of loans on the market and the characteristics that make these loans useful to customers.
Types of Loans available in India
There are various types of loans available in our country which can be broadly classified into two categories - secured and unsecured loans
1. Secured Loans
These loans require the borrower to put up collateral as security for the funds borrowed. If the borrower is unable to repay the loan, the bank may use the pledged collateral to recover the outstanding payment. When compared to unsecured loans, the interest rate on such loans is significantly lower.
Based on the purpose for which one needs funds, there are different types of secured loans available in India. They are explained below:
1.1 Loan against Real Estate or Property
A loan against property is popular and frequently used. Borrowers pledge their property in exchange for substantial sanctions that they can use to cover any expense of their choosing.
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1.2 Home Mortgage or Home Loans
Home loans focus on assisting you in purchasing a home by extending substantial funds. The property being purchased is the collateral in the case of a Home Loan. Following full repayment, the borrower receives ownership of the property.
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1.3 Loan on Gold
Borrowers can obtain funds by pledging gold jewellery in exchange for gold loans. A gold loan is typically used to meet short-term needs.
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1.4 Loans on Mutual Funds and Stock Investments
Loans against mutual funds and shares have similar terms, with the borrower using their mutual fund investments or shares as collateral.
1.5 Loans on Fixed Deposit
Your fixed deposit can also come in handy if you need to borrow money from a financial institution. The loan amount can range between 70% and 90% of the fixed deposit value, with the loan term lasting as long as the fixed deposit term.
2. Unsecured Loans
Unsecured loans are those in which no collateral is required for loan disbursement. To determine whether or not to grant the loan, the bank considers the borrower's previous relationship, credit score, and other factors. Because there is no way for recovering the loan amount if the borrower defaults, the interest rate on such loans may be higher.
Under unsecured loans, there are different types of loans available in India. They are:
2.1 Personal Loans
Most banks provide personal loans to their customers, which can be used for any purpose, such as paying a bill or buying a new television. These are typically unsecured loans.
Before approving the personal loan amount, the lender or bank requires certain documents such as proof of assets, proof of income, and so on. To repay the loan, the borrower must have sufficient assets or income.
In the case of personal loans, the application is only one or two pages long. Within a few days, the borrower learns whether the loan has been denied or approved.
You should keep in mind that the personal loan interest rate can be quite high. These loans have a short repayment period. So, if you borrow a large sum, it may be difficult to repay without proper financial planning.
Personal loans can be extremely beneficial when you need to borrow a small amount of money and repay it as soon as possible. Personal loan repayment can be easily made online with Paytm.
2.2 Small Business Loans
Small business loans are loans given to small and medium-sized businesses to help them meet a variety of business needs. These business loans can be utilised for a wide range of purposes that aid in business growth.
These could include purchasing equipment, purchasing inventory, paying employee salaries, marketing expenses, repaying business debts, meeting administrative expenses, or perhaps even opening a new branch or acquiring a franchise.
The number of years the business has been operational, the age of the business owner, income tax returns, and a statement of the previous year's turnover audited by a Chartered Accountant are common eligibility criteria for small business loans (CA).
2.3 Education Loan
An education loan is a loan that is specifically used to finance educational expenses for school or college. It will cover the basic course fees, exam fees, accommodation fees, and other miscellaneous charges, depending on the lender.
The student is the borrower, and any other close relative, such as a parent, grandparent, spouse, or sibling, is the co-applicant. It is available for courses in India and abroad. It can be used to enrol in a wide range of recognised part-time and full-time courses. They cover both vocational and undergraduate and postgraduate courses.
2.4 Vehicle Loan
Vehicle loans help people buy two-wheelers and four-wheelers. Furthermore, the four-wheeled vehicle can be new or used. The lender will determine the loan amount based on the vehicle's on-road price.
Because the loan rarely provides 100% financing, you may need to prepare a downpayment. The lender will own the vehicle until full repayment is made. Also, you can easily pay loan EMIs online with Paytm.
2.5 Agriculture Loan
A farmer may obtain agricultural loans to fund seasonal agricultural operations or related activities such as animal farming, pisciculture, or the purchase of land or agricultural tools. This type of loan also assists in the purchase of inputs such as fertilisers, seeds, insecticides, and so on, as well as the hiring of labour for crop cultivation and harvesting.
Agricultural loans also cover the cost of purchasing land, purchasing agricultural tools, storing and transporting produce, and the cost of ploughing land for sowing, weeding, and transplantation.
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