Owing to the RBI’s current monetary policy, the demand for credit in India has increased significantly. Since the interest rates are low, availing of credit has become more accommodating. However, the choices are plenty for an individual in terms of a credit instrument as various financial institutions offer a wide range of loans in India.
Therefore, prospective borrowers should learn more about this before applying for a loan.
Types of Loans in India
Primarily loans in India have two sub-types, secured and unsecured. Here are the explanations –
1. Secured loans
As the name suggests, this credit instrument is backed by collateral. Here, individuals need to mortgage an asset and get financing against it. Here are some notable examples of this mode of credit –
- Home loans
Individuals planning to buy a house can take the assistance of this financial product to access the necessary funds. A notable advantage of this credit instrument is its affordable interest rate. Additionally, income tax benefits help borrowers save on their repayments.
- Loan against property
LAP is available by mortgaging property. Here financiers keep this property as collateral and extend funds depending on its market value. The primary advantage of this financial product is its repayment tenor, which makes repayment affordable. In addition, individuals can avail of this fund to plan their home renovation.
- Gold loans
Another notable example of a secured loan is a gold loan. Here an individual pledges his/her gold items to avail of funds against it. Financiers decide the loan amount depending on the purity of gold articles, their weight and the current per-gram rate.
2. Unsecured loans
Unsecured loans in India are where a debtor does not require submitting any collateral to get funds. Here, lenders decide the loan amount and other factors based on a borrower’s eligibility. Here are some examples of unsecured loans –
- Personal loans
A personal loan is one of the most popular sub-types of unsecured loans available in this country. The primary reason behind its popularity is its prompt disbursal. Lenders credit the loan amount within a couple of working days following approval. Apart from that, other advantages of this financial product are –
- It comes without any restriction on its usage. It means one can meet an array of financial needs using this credit instrument.
- Along with faster disbursal, the competitive interest rate makes personal loans an ideal choice for meeting any financial need. Individuals can easily use a personal loan calculator to find the total loan amount and other details.
- Another notable benefit of a personal loan is its minimal paperwork. With this credit option, one can avoid the lengthy documentation process of a secured loan and get funds easily.
Small business loans
Another prominent example of unsecured loans in India is small business loans. Here companies can get necessary funds by meeting a few eligibility parameters and submitting nominal paperwork. However, the loan amount and other particulars vary depending on one’s choice of lender.
Payday loans
Payday loans are short-term unsecured loans that help meet any financial emergency without delays. The loan amount and other specifics depend on an applicant’s credit profile and monthly income. A point to note is that the interest rate charged here is higher than usual.
Besides knowing the types of loans in India, individuals must also learn about the pointers that they must evaluate before applying for credit.
Five Points to Check Before Availing of a Credit
1. Interest rate
The first point to check is the interest rate charged by a lender. Since it plays a significant role in determining the total outstanding amount, one must review this point to understand the total burden better.
2. Tenor
Loan repayment tenor is another major point to consider. A shorter tenor may increase the EMI amount, but it lowers the total outstanding and vice versa. Thus, individuals should select a repayment period using the EMI calculator in excel as per their affordability.
3. Associated charges
Associated charges are another notable point to review here. This includes processing fees, legal charges, etc. Together these additional fees and charges applicable on a personal loan or other financial products will increase one’s total repayment burden. Thus, prospective debtors must factor in these fees and charges before applying for a loan.
4. Pre-approved offers
Reputed financiers like Bajaj Finserv extend pre-approved offers to streamline the loan application process. These offers are available for current customers and are applicable on financial products like personal loans, credit cards, business loans, etc. Customers can check their pre-approved offers by submitting their contact details.
5. Loan terms and conditions
Last but not least, individuals must go through the loan terms and conditions before applying for any credit. This will help them to avoid facing any future issues.
The availability of loans in India can meet an individual’s wide range of borrowing needs. However, before applying for one, borrowers must consider their needs and repayment capacity and then make a decision accordingly.
