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What Are The Various Types Of Loans?

Bank Financing or Loans have changes the lending procedure in India, advancing growth and improving lifestyle in the country. A loan has become a potential alternative, which can help people in achieving their dreams, be it a buying a house or a sports car or studying at your favorite university. Today anyone can apply for Loan without much effort or work.

What is a Loan?

A loan is a specific amount of money, which an applicant take from the bank, with a promise to return the sum with the interest rate in monthly installment for specific years, till the full amount is paid.

Type of Loans

There are multiple types of loans provided by different banks in India. However, most people like to opt for an unsecured loan, rather than mortgaging an existing asset at stake to avail a loan at a low-interest rate. This usually happens because most of us still don’t know about these variant loaning options. So today we have created a list of all forms of loans available in India.

  • Home Loan

Everyone has a dream of living in their own home. But buying a property today, when rates are so high, it seems impossible for a middle-class man to spend some much money in one go. But with banks loan services today, anyone can invest in a new home. Home loans are further divided into following categories:

o   Land Purchase Loan

o   Home Purchase Loan

o   Bridge Loan

o   NRI Loan

o   Reconstruction/Home Extension Loan

These loans can be used to invest in a land or property. The home loan also has a category for reconstruction of the existing house to help people create their dream house.

  • Personal Loan

As the name suggests, the personal loan is meant for personal needs, which can be used to buy a car, new phone or go on a holiday. It involves both short and long-term tenures. Education loan, business development loan etc can be listed in this category. The personal loan usually has a high-interest rate, which can be balanced if the applicant put any of his/her assets as a security against the loan.

  • Vehicle Loan

It is also a type of personal loan which has created its own category because of its popularity in the country. This loan allows an applicant to buy any car, based on his/her repayment creditability, credit score, and monthly income. This loan has a low interest rate because it is a secured loan, as the vehicle is held as a security against the loan till the tenure period, so in case the applicant fails to pay the due amount, the vehicle is taken away from him.

  • Education Loan

It can also be categorized as a personal loan, in which bank finances the education expenses of the applicant or his family member to study in their desired university anywhere around the world. Looking at the popularity of students pursuing education abroad, almost every bank in the country has started offering Education loans. Once the students complete, their education and placed in a company, they are able to repay the loan themselves without becoming a burden on their family. This offers a great opportunity for students with the unstable financial background, to pursue higher education.

  • Gold Loan

This is the fastest and easiest form of a loan, which takes less than a week to get sanctioned. Earlier, when gold prices were showing a constant increase in their exponential rate, Gold loan became so popular that most banks today have to start offering this facility. However gold rates are not on a boom today, creating losses for gold loan centric financing companies.

  • Agricultural Loan

Agricultural Loans are one of the most popular loans in rural India, the land of farmers. The government is constantly trying to uplift the standard of agriculture and farmers in the country. Government and private sector banks offer multiple loaning options for farmers, helping and motivating them in their agricultural practices. Farmers can invest in pesticides; seeds, advanced equipment, and other hybrid seeds with can help enhance their overall growth, earning them extra profit, which they can use to pay back these loans.

Further Categorization of Loans 

Secured Loans – They are the type of loan in which the applicant puts a mortgage of his/her existing assets against the loan. They usually have a lower interest rate, because of the security available to the lender. They offer options of both fixed and variable interest rate. 

Unsecured Loans – In this loan, the applicant doesn’t keep any asset against the loan in the bank. Unsecured loans have a higher interest rate because of the lack of security involved in it. They are also available in fixed as well as variable interest rate options.

Open-End & Closed-End Loans 

Open End Loan – It can be described as a preapproved loan, which has been approved by a borrower or a financial institute in advance. This loan can be used multiple until a certain limit which can be paid prior to due payments. The limit on these loans is set by the agreement of both the parties involved. 

Closed-End Loan – It can be described as a credit whose full amount needs to be repaid by the term, on a specific date. This repayment includes the full amount of the principal amount and the interest rate. Closed End loans include all type of car loans and mortgage loan.    

Subsidized and Unsubsidized loans 

Subsidized Loans – Subsidized loans interest rates are paid by the Federal government, while the students are still in college, or if the loan is still in deferment. Interest for such loans directly starts accruing on the principal amount when the loan is taken out. 

Unsubsidized loans – In this type of loan, the interest rate is directly applied on the principal amount when the amount is given or transferred to the borrower. With this loan, the applicant will be charged a specific interest rate which has been mention in the loan agreement.

Since there are a lot of loans available in the market so before applying for a loan make sure that particular loan is apt for you.  There are few other loans too but their usability directly depends on the fact if you are an individual or a businessman.

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