Unlock Financial Freedom: Discover 19 Incredible Loan Options That Can Transform Your Life in India in 2024
Loans can be broadly categorized into two main types: secured and unsecured loans, depending on whether collateral is required as security. Secured loans demand collateral, whereas unsecured loans do not.
Each category offers a range of loan products, each with specific purposes. To make well-informed decisions when seeking financing in India, it’s essential to grasp the features of these various loan types.
In this article, we’ve compiled an extensive list of the diverse loan options available in India.
A Comprehensive Overview of Loans in India
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Secured Loans
Secured loans involve the pledging of collateral. A prime example of a secured loan is the home loan. In this scenario, your house serves as collateral for the lender.
In the event of loan default, the lender has the right to seize your property to recover the outstanding loan amount.
Typically, secured loans offer lower interest rates compared to unsecured loans due to the presence of collateral.
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Unsecured Loans
Unsecured loans, on the other hand, do not require collateral. Loan eligibility and interest rates are determined based on your creditworthiness, considering factors such as your income, repayment capacity, and credit score.
Cash loans or personal loans exemplify unsecured loans. Interest rates for unsecured loans might be slightly higher due to the increased risk stemming from the absence of collateral.
Exploring Various Types of Secured Loans in India
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Home Loan
Home loans are secured loans used for the acquisition of land or property. Several types of home loans are available in India, including land purchase loans, home construction loans, and home improvement loans, among others.
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Gold Loan
Gold loans are secured against gold ornaments, coins, or bullion. Borrowers pledge their gold possessions to obtain funds based on applicable loan-to-value norms. Gold loan interest rates can often be lower than those for personal loans.
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Loan Against Property
A loan against property (LAP) is a secured loan granted against property pledged as collateral. The borrowed amount does not come with any end-use restrictions, allowing for utilization based on various financial requirements.
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Loan Against Insurance Policies
Certain life insurance policies, such as endowment plans and traditional policies, can serve as collateral for a loan.
The maximum loan amount can reach up to 90% of the policy’s surrender value (not the sum assured), with interest rates typically tied to the bank’s 1-year MCLR rate.
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Loan Against Mutual Funds and Shares
Mutual funds and shares can also be used as collateral to secure funds. Lenders may approve loans of up to 65% of the Net Asset Value (NAV) of eligible shares and equity funds, as well as up to 85% of eligible debt funds.
However, pledged shares or fund units cannot be redeemed until the loan is fully repaid, while unpledged units and shares continue to accrue interest as per performance.
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Loan Against PF/EPF
Individuals with Provident Fund (PF) accounts can obtain loans against these accounts. Such loans are considered premature withdrawals and do not entail additional interest charges.
However, premature PF withdrawal is typically allowed only for specific predefined purposes, such as medical emergencies, home purchases, weddings, unemployment, subject to terms and conditions.
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Loan Against Fixed Deposit
A loan against a fixed deposit (FD) involves using the FD as collateral to secure funds. Borrowers can typically access a certain percentage of the total deposit amount, often up to 90-95% of the deposit, depending on the bank’s policies. Interest rates on such loans are usually up to 2% higher than the prevailing FD rate.
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Vehicle Loan
Vehicle loans are typically secured loans designed to finance the purchase of a vehicle, whether it’s a car, bike, or electric vehicle. The vehicle itself serves as collateral against the loan.
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Car Loan
For those aiming to purchase a car, car loans are available. Lenders may offer up to 85% of the car’s ex-showroom price as a loan, subject to their specific terms and conditions. Car loans can further be categorized into new car loans and used car loans.
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Two-Wheeler Loan
Two-wheeler loans enable individuals to buy a motorcycle or scooter of their choice. These loans typically provide up to 85% financing of the two-wheeler’s on-road value, with the vehicle acting as collateral.
Understanding the array of loan options in India empowers borrowers to make informed decisions tailored to their specific financial needs.
In the Indian financial landscape, unsecured loans offer a versatile array of financing options for various needs. Below, we delve into different types of unsecured loans available in India:
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Personal Loans
Personal loans are unsecured and can be utilized for a wide range of financial needs, be it emergency expenses, home renovations, vacation financing, or wedding expenses. Preferred applicants with a stable income and high credit scores can secure personal loans at the most competitive interest rates.
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Cash Loan
Similar to personal loans, cash loans provide quick access to funds through a lender’s mobile application, often in a completely paperless process.
These funds can be used without any usage restrictions, making them versatile for various financial requirements.
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Education Loans
Education loans serve as a lifeline for those pursuing higher education, whether in India or abroad.
They cover not only tuition fees but also accommodation and living expenses. While most education loans are unsecured, some high-value applications may require collateral or a guarantor.
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Agricultural Loans
Financial institutions extend agricultural loans to support a diverse range of farming activities, offering crucial assistance to farmers across the country.
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Flexi Loans
Flexi loans provide a unique financing arrangement where borrowers access a specific loan amount and pay interest solely on the utilized portion.
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Credit Card Loans
Credit card loans are linked to a user’s credit card account, which may or may not be tied to the card’s credit limit. Loan repayments are typically merged with the card’s monthly billing cycle.
While these loans offer a quick and paperwork-free application process and can be used for various financial needs, they often come with higher interest rates compared to personal loans. Thus, they are best used sparingly and for smaller amounts.
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Short-term Business Loans
These unsecured loans cater to businesses, organizations, or entities seeking funding for daily operations or expansion.
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Payday Loan
Payday loans are short-term, smaller-ticket loans with higher interest rates. They feature shorter tenures compared to personal loans.
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Overdraft
A bank overdraft allows eligible customers to make transactions or withdraw funds up to a predetermined limit, even if their account balance is zero. Interest is charged solely on the utilized overdraft amount, not the entire limit. However, some overdraft types, such as overdrafts against fixed deposits and insurance policies, are considered secured loans.
In Conclusion
While a wide array of loan options exists, each comes with its set of advantages and disadvantages.
Therefore, it’s crucial to compare multiple loan options to identify those that align best with your unique financial requirements.
After finalizing your preferred loan type, make sure to review loan offers from various lenders.
Above all, borrow responsibly, ensuring prompt and full repayment to avoid additional charges, safeguard your credit score, and prevent the potential loss of valuable pledged assets.
Answers to Common Loan Queries
How do banks decide whether to approve a loan or not?
Banks assess an individual’s credit score, income, employment history, debt-to-income ratio, collateral value (if applicable), down payment size, liquid assets, and loan tenure to gauge creditworthiness. Poor credit scores are more likely to face rejection due to the higher risk of default.
Is there a cap on the loan limit for all types of loans?
Starting in 2021, the maximum loan limit was increased from Rs. 25 lakhs to Rs. 5 crores.
However, the Reserve Bank of India stipulates that Rs. 5 crores is the upper limit, and individuals must undergo thorough scrutiny and approval.
How many members can be added as co-borrowers for a loan?
Some banks and financial institutions permit multiple co-borrowers depending on the loan type and the financial/credit history of the borrowers.
For instance, a home loan can typically include up to six co-borrowers, including close relatives like parents and siblings.
How many types of loans are there in India?
Loans in India are classified into secured and unsecured categories. Secured loans encompass home loans, gold loans, loans against property, and loans against insurance policies, among others. Unsecured loans include personal loans, cash loans, and credit card loans, to name a few.
Can I take a cash loan to start a business?
Yes, you can use a cash loan to meet immediate business funding requirements. Alternatively, you can apply for a dedicated business loan online.
Can I get a loan if I am self-employed in India?
Yes, self-employed individuals in India are eligible for personal loans, home loans, and other loan types. However, specific lenders may have distinct eligibility criteria for self-employed applicants.
Are there any Government loan schemes in India?
Yes, the Government of India has various schemes in place to offer financial assistance to farmers. These schemes include the Kisan Credit Card, Pradhan Mantri Fasal Bima Yojana, and Pradhan Mantri Kisan Samman Nidhi, among others.
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