If you clicked on this article, it means you are researching about loan and want to know about them more. This article will give you a walk through on what is a loan and what types of loans are available in India.
A loan is a sum of money that someone (an individual or organization) borrow from bank or other financial institutions and in the process, incur a debt, which they have to later pay back with interest and in a given time limit. Now what the person needs the loaan for and the amount varies from situation to situation. Now loaan are divided into two categories based on the purposes they are used for.
These are the types of loaan where you give some asset as a security (referred to as collateral) which the lender has the right to sell if you fail to return the loaan within the designated time. The interest rate for secured loaan tends to be lower due to the involvement of collateral which works as a security for the lender. Secured loaan is of following types:
- Home loan: As the name suggests they fund you so that you can buy the home of your choice. They can be funded in the forms of land purchase, home construction, home loaan balance (transfer the balance of your existing home loan at a lower interest rate), or top up (renovate existing home) loaans.
- Loan against Property (LAP): This is the money you get in place of a pledge of any residential, commercial or industrial property of the person requiring the funds. The amount of funds received is equal to a certain share of the property, with some lenders giving 50-60% or some up to 80% of the property’s worth.
- Loans Against Insurance policies: This kind of loaan can be taken against insurance policies. However, the only policies qualified for this purpose are the ones which have a maturity value, like endowment and money-back policies.
- Gold Loan: A gold loaan is given against a pledge of gold jewelry or coins as collateral. The loan amount, as similar to LAP are given to a certain percentage of the jewelry pledged. This loaan is usually used for short-term period and consequently, has a shorter repayment tenor compared to other loaan.
- Loans against mutual funds and shares: For pledging your mutual funds as collateral, you need to write to financier and execute an agreement, who will then write to the mutual fund registrar and put a lien on the number of units to be pledged. Again, you will get a certain percentage, usually 60-70% of the shares.
- Loans against Fixed Deposits: The loaan amount in this case can vary between 70-90% of the FD’s value and the loaan tenor cannot be more than the FD’s.
These loaan are given taking in account the past association, the borrower’s credit score and history, and therefore, they do not require a collateral. Their rate of interest however, tends to be higher. Following types of loaan come under this category.
- Personal Loan: This is one of the most popular types of unsecured loaan that offers instant liquidity. It can be taken for purposes like managing expenses in a wedding, paying for a vacation, meet unexpected expenses, etc.
- Short-term Business Loan: This is taken by an organization to meet its various needs like acquiring machinery, loaans for traders, managing daily expenses, etc.
- Flexi Loan: This is a unique type of loaan that gives you the freedom to control your finances and not depend on the rigid loaan systems and also save on your EMIs by 45%. With this loaan, you can avail funds from you approved limit whenever needed, and pay interest only when the amount is used. You can also withdraw on the loaan limit any number of times, and prepay at no additional cost. You also have the option to pay only interest as EMIs, with principal payable at the end of tenor.
- Education Loan: This loaan covers the course’s basic fees and allied expenses such as accommodation, exam fee, etc. The student here is the primary borrower with one another person being the co-applicants. The unique part in this case is the moratorium period, wherein the student has the option of not paying any EMI until either after 12 months of completing the course, or six months after they start working, whatever is earlier.
- Vehicle Loan: These loaan are offered either on the purchase of a new vehicle or a used one. The credit score, ratio of debt to income, and loaan tenor of the borrower are some of the factors that help in determining the loaan amount.
With this, your guide to loaan in India comes to an end. Hope you found your ideal type of loaan while skimming through the article.