Loans can be utilised for various things in today’s world. We may not always have the money we require to do certain things or to buy certain things. In such situations, individuals and businesses/firms/institutions go for the option of borrowing money from lenders. Let us talk about the different types of loans available in the market and their specific characteristics that make these loans useful to the customers.

 

A. Loan in Retail Section

1. Home Loan:

When you wish to purchase a house, applying for a home loan can support you to a great extent. These loans generally come with longer tenures (20 to 30 years). The Rate of Interest offered by some of the top banks in India with their home loans based upon your credit score. If you have a good credit score, there is a fair chance that you will be able to enjoy lower rates of interest with your home loan.

Purpose of Home loans are;

§  Purchase of Home: To purchase of Flat/Apartment/Row House/Villas and farm house

§  Land and Construction (Composite loan): To purchase land for your new home

§  Home construction loan: To build a new home

§  Top up loan: Can be used to renovate an existing house or have the modern interiors for your new home.

§  Home Loan balance Transfer: transfer the balance of your existing home loan at lower rate of interest.

Home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Most banks have a separate policy for those who are going for new house. Please remember to seek specific clarifications on the above-mentioned issues from your bank.

 

2. Loan Against Property [LAP]/Mortgage Loan

A loan against property/Mortgage Loan is one of the most common means of a secured loan. You can security any residential, commercial or industrial property to avail of the funds required. The loan amount disbursed is equivalent to a certain percentage of the property’s value and varies across the lenders, may offer an amount up to 80% value of the asset.

Amount can be used to gratify personal life goals such as higher education of children or marriage or hand loans. For Business can utilise for business expansion, Research and development, and product development among others.

 

3. Personal Loan

Whenever there is a liquidity issue, you can go for a personal loan. The purpose of taking a personal loan can be anything from repaying an old debt, going on vacation, funding for the down payment of a house/car, and medical emergency to purchasing big-ticket furniture or gadgets, consolidate all your debts into a single loan.

The interest rates for this type of loan are on the higher side compared to the other types of loans.

 

4. Education Loan:

Ambition for higher education from reputed institutions. This loan covers the courses basic fees and allied expenses such as exam fees, accommodation, etc.

An educational loan can be taken for a full time, part time, or vocational courses, along with graduation and post-graduation courses in management, engineering and medical. The student may repay the loan once the course is complete. The financing is available for domestic and international courses.

A unique feature of education loan is the Moratorium period, student has the option of not paying the EMI’s till 12 months of completing the course or six months after start working, whichever is earlier.

 

5. Vehicle Loans

A vehicle loan is extended in the form of a two or four-wheeler loan that helps you buy your dream vehicle. Vehicle loans are offered purchase of new vehicle or used vehicle. This loan generally come with 5 to 7 years tenure.  Loan amount will be determined by the lender depend on upon Performa invoice/Quotations. The vehicle will own by the lender until full closer of loan. 

 

6. Gold Loan

Many financiers and lenders offer cash when the borrower pledges physical gold, may it be jewellery or gold bars/coins. The loan amount sanctioned is a certain percentage of the golds value pledged. The money can be utilised for any purpose.

Gold loans are generally used for short term needs and have a short repayment period.

 

7. Consumer Loans

As the name suggests, consumer loans can help you to purchase items such as electronic gadgets and household appliances. The amount you can borrow depends on the lender; it ranges from Rs.5,000 to Rs.5 lakh, with no security deposit required usually.

 

8. Small Business Loans:

Another type of unsecured loans, Small Business Loans are loans that are provided to small scale and medium scale businesses, can be used to meet various entities and organisations expansion and daily expenses.

-            Loans for manufacturers

-            Machinery Loans and equipment finance

-            Small business loans for MSMEs

-            Loan for Traders

-            Loan for service providers

9. Loan against fixed deposits:

Fixed Deposit not only offers assured returns but can also suitable when you need a loan. The loan amount can be up to 90% of the FDs Value and varies across the lenders. However, it’s essential to consider that the loan period can’t be more than the FDs period.

 

10. Loan against Insurance policies:

You can also avail of loan against your insurance policy. However, all insurance policies don’t qualify for this. Such a policies has endowment and money back policies, which have maturity value, can avail loans.

You can’t avail loan against a term insurance plan as it doesn’t have any maturity benefits.

 

B. Loan in Business Section

 



1.     Working capital Loan:

It is a collateral-free loan secured to meet day-to-day business requirements. These are usually short-term loans with a yearly renewal of up to 12 months.

 

2.    Term Loan:

A loan offered for a predefined period with fixed EMI. These loans are used to purchase a fixed asset or commercial space for business or expansion of a business. Interest rates charged may be fixed or floating as per the agreement between the lender and the borrower.

 

3.    Machinery Loan or Equipment Finance: 

Loans that are availed by large enterprises engaged in the manufacturing sector during business expansion or when the old equipment needs to be replaced. These loans often enjoy tax benefits as well.

 

4.    Letter of Credit:

These types of loans are famous in the business where the export or import of goods from international markets is required. The business owner may not have known the supplier personally in those circumstances, where a supplier is unknown to the business owner. Banks act as an intermediary to assure the parties. 

 

5.      Overdraft Facility:

In the course of the business, the business owners may opt for an overdraft facility from their banks. The banks offer overdraft facilities to their trusted customers based on their relationship with the customer and their credit history. To help them grow their business.

 

6.    Loans under the Government Schemes:

The government of India often comes with various schemes to pace up the growth of the economy. These schemes offer loans to women entrepreneurs, MSMEs, and individuals engaged in trading, manufacturing, and service to start or expand their businesses at discounted interest rates.

 

7.       Agricultural Loan:

These loans are ideal for farmers. They require funds for day-to-day farming activities or purchasing equipment necessary for farming.