A loan is a sum of money borrowed from a lender for a specified period with the promise of repaying it with interest but most people avoid going into debt. It is because of the conditioning of our mindset that taking loans is bad. Taking a loan is not a big deal. Instead of worrying about a lack of money, you can take a small loan and repay it in small EMIs. Many banks and financial institutes offer different types of loan in India. They are customized according to people’s needs. Depending on your financial needs, you can borrow different types of loan from banks.
How many types of loans are in India?
Secured types of loan
Home loan
Gold loan
Vehicle loan
Loan against property
Agriculture loan
Unsecured types of loan
Personal loan
Educational loan
Business loan
Points to remember before and after getting a loan
How many types of loan in India?
Secured and unsecured loans are the two categories of loans.
Secured loans
It is one of the best and reliable types of loan. People usually prefer secured loans. It is because secured loans provide a large amount with a low-interest rate. Loan approval takes less time. No need for a guarantor for these secured loans. The borrower should pledge an asset as collateral. If the borrower fails to repay the loan, the bank or lender can confiscate the asset. It includes gold loans, home loans, and loans against property, etc.
Unsecured loans
Unsecured loans are short-term loans with higher rates. No need for collateral or guarantee. Based on your credit history and financial situation loans are granted. Thus, there is no risk of losing your asset. But it is more difficult to pass the loan. This includes educational loans, personal loans, etc.
Secured types of loan
Home loan
The home loan gives you the funds required for buying or constructing a house. These loans are for a longer period, usually for about 10 to 30 years. Because of this, even a slight difference in interest rate can have a significant impact. That is why, if you are looking for a home loan, research and compare all options. Select the cheapest rate on the deal. Then it will not cause a burden on your budgeting. Women receive many benefits like lower interest rates, tax deductions. They get preferences in schemes like Pradhan Mantri Awas Yojana (PMAY) both Rural and Urban. Certain tax benefits are also available on home loans under Section 80EE of the Income Tax Act.
Gold loan
Because Indians love investing in gold, gold loans are a convenient option in times of need. You must pledge your gold ornaments or coins as collateral. It’s only used for a short time. The amount of money depends on the market value and quality of gold. The loan approval process is fast. It needs a few documents. It also does not need a credit score. In general, gold loans have lower interest rates. Unlike a home loan or car loan, there are no restrictions on the use of gold loans. One should check before if they are eligible for it or if it is the type of loan they should go for. More details can be checked here.
Vehicle loan
Banks, dealers provide vehicle loans. Loans from dealers are convenient but it has a higher interest rate than banks. If you fail to repay the loan, the bank has the right to take your vehicle. There are different types of vehicle loans. – car loans, two-wheeler loans, commercial vehicle loans. Apart from loan amount and interest, you have to pay taxes, registration fees, insurance premiums, service charges, and other fees.
Loan against property
You can get loans against any property like a commercial, industrial, residential property. This is the largest amount of loan one can get. You can get up to 50 to 80% percent of the amount of property as a loan. Tenure is for a long time thus interest rate is lower and you have to pay less EMIs per month. You need to pledge property papers as collateral.
Agriculture loan
A farmer may take out an agricultural loan for monsoonal agriculture activities. For example, fertilizers, seeds, pesticides and herbicides, crop cultivation labor, and farming implements. Many farming-related activities, including animal agriculture and pisciculture, require funds. Agriculture loan interest rates start from 7 to 9% per annum. There are many types of agricultural loans. – Crop loans, Agricultural Term loans, Farm Mechanization loans, Horticultural loans. The government offers many schemes for agriculture loans.
Government schemes for farmers can be checked here.
Unsecured types of loan
Personal loan
It is one of the best and most popular types of loan in India. People take for emergencies, long trips, marriages, to pay the debt. You need to have a good credit score for approval of a personal loan. You need the following documents for the loan approval process. It includes an income certificate, government ID, savings/ current account in a bank, income certificate. Eligibility and other requirements can be referred from here too.
Educational loan
As day by day, education is becoming very pricy. Parents feel burdened by extravagant tuition and academic fees. Those who wish to pursue higher educations or go abroad for education can get an education loan. The loan covers the fees of students per year. They need to start a joint account with their parent or any other guardian. You need to show an admission or acceptance letter from the college, mark sheet for the previous year. Educational loans, also known as student loans have low-interest rates. Students have to pay back the loan when students graduate and get a job.
Business loan
Capital is essential to start or grow a business. to buy machinery, the employee wages, advertising costs, the repayment investor’s money. The loan term can vary from 12 to 60 months. The process of loan approval needs little paperwork. The approved loan payment is deposited into your account within one business day. There are different types of loans in India for small business owners – Working Capital loans, Term loans, letters of Credit, Machinery loans. The government has launched many schemes to encourage entrepreneurship in India. – MUDRA Loans, Stand-Up India, Udyogini.
Points to remember before and after getting a loan
- You should consider the loan term, interest rates of all the banks, loan size, and collateral.
- Don’t take out more debt than you can pay back.
- Pay your EMIs.
- You must create a budget to pay your monthly installments.
- Maintain your credibility by avoiding late or unpaid interest rates.
Pay attention to the following details before taking out a loan – interest rates of different banks, service charge, terms of repayment, limitations on amount, Demands for collateral.
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