Types of Loans in India for Different Needs You Must to Know!

In India, the banking sector offers many types of loans in India to its account holders to fulfil people’s requirements. Every Indian can borrow a loan, either a businessman, employee, professional, or student. In today’s situation, loans can be used for a kind of different purposes. It can be utilized for various purposes, from supporting a start-up to purchasing appliances for a newly purchased home. There are multiple banking institutions and NBFC firms provided funds as loan for any type of requirements.

Before, taken a loan from any financial institution we are recommend please check your eligibility to repay the loan in provided term without any trouble, because delay or skip any EMI can be harm your financial situation. You can calculate emi (Estimated Monthly Installments) and payment schedule, interest rates, loan tenure and moratorium period before doing any action. 

Now, we’re Discussing the many types of loans available on the market, and their unique features, which make these loans valuable to clients, will be of great benefit to you.

What is the meaning of a loan?

A loan is an amount that bank customers can borrow with an agreement to return all principal amounts with interest within a specific period. The bank offers to customers an estimated monthly instalments (EMI) scheme to repay the entire loan in a recurring schedule.

Loan Elements –

A loan has been completed with some elements you need to know:

  • 1. Principal Amount – A principal amount is the actual loan amount you want to borrow from the lender.
  • 2. Interest Rate – The interest rate is in %, which is calculated per annum.
  • 3. Down Payment – A down payment is an initial amount from 10% to 40%, depending on loan type and term.
  • 4. Term or Tenure – The loan term is when the financial institution decides to repay the loan by the borrower.

Other than these, insurance and processing fees and other expenses are also some elements in the loan application process.

Types of Loans in India Available for Indian Citizen

Indian financial institutions provide different types of loans for different needs of people. such as housing loans for purchasing or constructing a home, Personal loans for personal needs, Car/Auto loans for buying a vehicle, Gold loans, Business loans for starting and growing a business, etc.

Personal Loans

All Financial Institutions provide personal loans to their customers, which borrowers can use for a vacation, pay bills, or for any occasion. These are typically unsecured loans. Before approving the personal loan amount, the lender or bank requires specific 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.

It would be best to keep in mind that the interest rates on these loans can be pretty high. These loans have a short repayment period. So, if you borrow a large sum, it may not be easy to repay if you do not plan your finances properly. Personal loans can be highly beneficial when you need to borrow a small loan and payback it as early as possible.

Home loan

Home loans are a type of secured loan that allows you to purchase or build the home of your dreams. These four types of home loans are available in India:

Loan for buying a plot: Purchase land for your new home.

Build a new house with the help of a home construction loan.

Transfer the balance of your existing home loan to a lower interest rate.

Top-up loan: This can be used to renovate or upgrade an existing home

It is important to note that when purchasing a new property/home, the lender will require you to make a down payment of at least 10-20% of the property’s value. The loan amount is determined by your earnings, stability, and payables, among other factors.

Car Loan/Vehicle Loan

Purchasing a car can undoubtedly bring about an immense sense of excitement and satisfaction in your life. A car will continue to be an asset for you, and it will be one of the most vital financial investments you will ever make.

A car loan can assist you in bridging the gap between your desire to possess a car and the actual purchase of your vehicle. Because credit reports are critical in determining your eligibility for any loan, having a high credit score is beneficial when applying for a car loan.

Almost all banks will process the loan application quickly, and you may even be eligible for a loan, including a lower interest rate than you had anticipated. Car loans are loans that are backed by collateral. If you miss making your monthly payments, the lender will repossess your vehicle and pursue collection of the unpaid amount.

Two-Wheeler Loans

In today’s world, having a two-wheeler is almost a necessity. Cycling and scootering are convenient modes of transportation, whether you’re going for a long ride or travelling down a crowded city road.

Applying for a two-wheeler loan is a simple process. When you take out a two-wheeler loan, the money you borrow assists you in purchasing the vehicle.

However, if you do not make timely returns and clear your debt, the insurance will repossess your two-wheeler to reclaim the loan amount owned to you.

Education Loans for Higher Education

Demand for education loans in the country has increased as more people aspire to higher education from prestigious institutions. These fees and additional expenses such as lodging, exam fees, and other related expenses are covered by this loan. The student is the primary borrower in this loan, with co-applicants including parents, siblings, and a spouse.

An education loan can be used to fund a full-time, part-time, or vocational course and a graduation and post-graduation course in various fields such as management, engineering, and medicine, to name a few examples of subjects. Upon successful completion of the course, students must repay their loans.

Education loans are distinguished by the moratorium period, which allows students to defer loans of their EMIs until after 12 months of completion of the course or until six months after they begin working, whichever is the earlier of the two events occurs first.

Credit Card Loans

When you want to borrow money with a credit card, keep in mind that you will be accountable for paying back the money you borrowed at the end of the billing cycle.

Credit cards are accepted almost everywhere, including when travelling outside of the United States. Since it is one of the most convenient ways to pay for your purchases, it has become a trendy loan type in recent years.

A credit card application and approval are as simple as filling out an application form provided by the card issuer. You can also apply for a credit card online if that is your preference.

These plastic cards are loaded with fantastic rewards and advantages. Although you must repay the loan on time, you will be handsomely rewarded for doing so.

There are, no doubt, risks associated with this type of loan arrangement. If you borrow money on your credit card, you should be aware that you will be charged a small amount of interest on the money you borrow.

If you do not pay your credit card bills on time, the interest will continue to accrue, and it may become difficult for you to manage your finances due to the increasing outstanding balance.

However, if you use your credit card responsibly and pay off all of your debts on time, it will almost certainly prove to be your best friend in your wallet.

Consumer Durable Loan

Consumer durable loans are to finance the purchase of consumer durables such as electronic gadgets and household appliances. They can purchase various items ranging from mobile phones to television sets, depending on the lender. The loan amounts could be from Rs. 5,000 to Rs.5 lakh (approximately).

Generally, there is no requirement for a security deposit. Some lenders offer zero per cent interest on consumer durable loans, with instant approvals and minimal documentation requirements. Others require only a small amount of documentation.

Loans Against Insurance Policy

You can borrow money against your insurance policy if you have one. However, you should note that not every insurance policy is qualified for this. Endowment and money-back policies and policies with a maturity value are the only loans that can be used to obtain loan financing.

As a result, you will not obtain a loan against a term insurance plan because it offers no maturity benefits. Furthermore, loans against unit-linked plans are not available because the returns are not fixed and are subject to stock market performance. It is important to note that you can only obtain a loan against endowment and money-back policies after they have accrued a surrender value. These policies only have a surrender value if the policyholder has paid monthly premiums for three years in a row.

Loans Against Mutual Funds and Shares

Mutual funds, an excellent medium for long-term wealth accumulation, can also be used as collateral to secure a loan. Mutual fund and stock value loans are made available by some lenders against your mutual fund and stock value. However, you will not be able to borrow large money loans through this type of loan arrangement.

To receive a loan, you can pledge equity or hybrid funds to the financial institution. To do so, you must write to your financier and sign a loan agreement with them. If everything goes according to plan, your financier will report to the mutual fund registrar and have a lien placed on the specified number of units to be pledged created.

Typically, you can get a loan for 60-70 per cent of the value of the units you have to sell. The loan value is a proportion of the value of the shares in question.

Loans Against Fixed Deposits

Such a type of loan includes, for example, a loan against fixed deposits, in which your fixed deposit serves as security. For instance, you can utilize a fixed deposit of Rs.20 lakhs with a bank to qualify for a loan of up to Rs.16 lakhs from the same institution. On the other hand, a fixed deposit has an interest rate that is typically lower than the rate of interest associated with a loan of this sort.

Besides providing assured returns, the initial fixed deposit can also be incredibly beneficial if you need to borrow a loan in the future. Essential to keep in mind is that the loan’s term cannot be longer than the term of the FD in any circumstance. According to the lender, the loan amount can range from 70 to 90% of the FD’s value.

Gold Loan

You can use your gold to raise funds for sudden or anticipated financial needs, such as business expansion, starting a business, education, medical emergencies, agricultural expenses, and other such requirements as described above.

An unsecured loan in which gold is promised as security or collateral in exchange for a loan amount equal to the per gram market value of gold on the day the gold is pledged is referred to as a loan against gold. When evaluating the value of the gold loan, Financial Institution will not consider the value of any other metals, diamonds, or stones present in the jewelry.

Farming Loan

Farming loans are offered to farmers to meet their general agricultural needs or to help them cover their day-to-day expenses. These loans might be short-term or long-term. It is possible to employ them for many purposes, such as acquiring crop capital and buying farming equipment.

 Small Business Loans

Small Business loans are loans to small and medium enterprises to suit different business requirements. Loans are helpful for several objectives that help your business expand. Buying equipment, inventory, and payroll, along with marketing, business debt, and administrative costs, as well as investing in a new branch or a franchise opportunity, are all examples of how you could spend money.

Depending on the lender, the requirements for small business loans can differ significantly. Still, common ones include the age of the business owner, the number of years the business has been operational, the owner’s tax returns, and a recently-audited statement of last year’s income (CA).

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