The Indian lending market is busier than ever.
Today, several banks and NBFCs are eager to offer loans to individuals and businesses who need financial resources. In tandem, people are keen to take advantage of loan schemes as well.
Loans provide financial flexibility in managing personal and business finances while retaining existing savings and investments. They help you overcome financial constraints and grab opportunities that may otherwise be out of reach. And thanks to technology, loans are more accessible than ever. Instant online loans can be helpful in several situations, like expanding your business, buying a home or a car, funding higher education, or dealing with unexpected expenses. What's more, loan schemes also offer tax benefits on the repayment amount. And by repaying your loan in a disciplined manner, you can also increase your credit score, which further boosts your eligibility for future loans.
If you need funds to achieve a goal and wondering if an appropriate loan scheme can help, this article is for you. We have categorised them into secured loans (those which require collateral) and unsecured loans (those which don't require collateral.)
Here is your guide to the different types of loans available in India.
Secured loans available in India
A loan where the lender asks you for collateral is a secured loan. The collateral offers the lender security and reduces their risk.
When you avail of a secured loan, you get benefits such as lower interest rates, a higher loan amount, easier approval, and longer repayment terms.
Types of secured loans
#1 Home loans
Home loans are ideal if you want to build or purchase a house without compromising on your savings. For this loan, the collateral is the house you are building or buying, and the repayment duration is typically 10 to 30 years from when you build or buy your home. A stable income, a good credit score, and the ability to make the down payment for the house will ensure that you are eligible for a home loan.
Another benefit of taking a home loan is that you can claim tax deductions on both the principal amount and the interest payments, as per Section 80C and Section 24B of the Income Tax Act.
#2 Loan against property
A loan against property is a type of loan where you use a property registered to your name as collateral. This may be a commercial or a residential property.
To qualify for a loan against property, the property must meet the valuation criteria set by the lender. The repayment duration for this type of loan is generally 5 to 20 years.
You can use a commercial property registered in your or your business's name as collateral for a loan against commercial property. This type of loan works best for entrepreneurs as it helps them finance and grow their business venture.
#3 Vehicle loans
A vehicle loan allows immediate access to your dream vehicle while spreading its cost over time.
These loans have shorter repayment terms compared to home loans, and the vehicle you purchase is your collateral.
To be considered eligible for a vehicle loan, you must have a driver's licence, a stable income with income proof, and a good credit history.
#4 Loan against fixed deposits
If you hold a fixed deposit, you can use it as collateral for a secured loan. The repayment duration corresponds with the deposit's tenure. This type of loan is perfect if you need funds in the short term without breaking your fixed deposit prematurely.
#5 Gold loan
As the name suggests, you can avail of a gold loan by pledging physical gold as collateral. In this case, the loan amount depends on the value and purity of the gold you wish to pledge, and the repayment duration can be anywhere between a few months to a few years.
This type of loan allows you to gain access to funds instantly without selling your gold assets.
#6 Loan against securities
If you have invested in financial securities, you can use them as collateral to avail a loan. You may use mutual funds, bonds, and stocks for this purpose.
To be eligible for this loan, the securities must meet the requirements defined by the lender, and the repayment duration also depends on the type of security pledged. This loan gives you liquidity without having to forego the benefits of future securities market growth.
#7 Loan against insurance policies
You can also use your life insurance or endowment policy to obtain a loan by placing the policy as your collateral. The repayment criteria for a loan against insurance depend on the type of insurance pledged. This loan allows you to retain the benefits of your insurance policy while also procuring funds urgently.
Unsecured loans
An unsecured loan is a loan you can avail of without any collateral. The lender considers your creditworthiness to assess if you can repay the loan. They use your credit score and history to determine whether to approve your loan request.
The application process for unsecured loans is relatively simple and more accessible. However, with unsecured loans, the lender subjects you to stricter eligibility criteria and charges higher interest rates.
Types of unsecured loans
#1 Personal loan
Personal loans provide you with funds for various uses. You may use it to pay for an event, a medical emergency, higher education, travel, debt repayment, or home improvement. The eligibility for this loan depends on your credit score, employment status, and income.
#2 Credit card loan
If you have a credit card, your card provider may offer instant loans against your cards. The loan amount depends on your credit limit, while the interest rates and repayment duration are specific to the terms of your credit card provider. Since you are an existing customer, these loans are pre-approved, and there is no need for any paperwork.
Things to consider before taking a loan
#1 Why do I need a loan?
Defining the purpose for which you need a loan is the first step when you start thinking about taking a loan. This way, you know exactly how to use your loan amount and borrow only what you need.
#2 Do I have the collateral necessary to obtain the loan?
Understanding the collateral requirements for a loan is an essential step to choosing the right loan. This clarity helps you determine if you should opt for a secured or an unsecured loan.
#3 What kind of repayment terms can I afford?
Your tenure, interest rates, and loan amount are based on your financial credibility, availability of collateral, type of collateral, and type of loan. Before you commit, make sure you understand all your loan terms completely. If you find that you cannot afford to repay your loan as per the given loan terms, it is best to wait a while and assess your options. You can compare interest rates among different lenders and ask for longer tenures to reduce the burden of EMI.
Looking for financial support?
Turn to Tata Capital. We offer a variety of loan schemes for individuals and businesses so that you can fulfil your dreams and achieve your goals with ease.
Tata Capital offers competitive interest rates, flexible EMI options, and multi-purpose secured and unsecured loans with minimal documentation. To plan your loan repayment journey, you can use our EMI calculator to estimate your EMI amount and make an informed borrowing decision.
Visit the Tata Capital website to learn more, check your eligibility, and apply online.
05 February 2024
7 mins read
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