What are the different types of loans and how do they work?
The capital borrowed loans are essentially from a bank or a financial institution. Against lending money these institutions charge interest for a certain period of time. To meet emergencies banks loans are the best way these loans act as a catalyst for growth. The types of loans depend upon the purpose of borrowing the loan. A borrower can access various types of bank loans that are available. There are different types of loans that are available from lending institutions.
Different types of loans in India
There are different types of bank loans that are provided by the banks that are as following:
Secured Loans
They are secured loans that are provided against security. For availing of secured loans the borrowers need to furnish security. The lenders face a lower risk of default in the case the borrower is unable to repay the loan. The secured loans can have low interest rates.
Unsecured Loans
These are provided against the prospective income-earning capacity or the income of the borrower. Unsecured loans are based on the documents provided by the borrower through their CIBIL history, their income. The borrowers are not required to furnish any security regarding unsecured loans. In case of default by the borrower unsecured loans increase the risks of the lender increased by the unsecured loans. The reason behind why lending institutions charge a higher interest rate is that there is no security available with the lender from which it can recover.
Types of Secured Loans
There are different types of secured loans that are as follows that can avail from the lending institutions:
Home loans
The most common types of secured home loans are availed of by the borrowers. For the purchase or construction of a home these home loans are taken. When we talk about the security the home itself acts as a security for the lender. The home is the primary security and the lender may require the borrower while depending upon the borrower’s profile to furnish. This can be either of any other asset or a fixed deposit. The loan term home loans can range from 10 years to as long as 25 years. The most affordable are usually high-ticket loans.
Gold loans
These gold can act against a security and avail of money from them. The gold owners are taken against the borrowers whereby the borrower can pledge the gold with the lender. Until the loan is repaid the lenders retain possession of the gold. The interest rate starts from 7.50% per annum for getting the gold loan. Most lenders only pay the interest on the loan amount each month.
Vehicle Loans
These vehicles act as a security for the lender and the loans taken for the purchase of the vehicle. These vehicles can include both commercial and passenger vehicles as well as heavy vehicles, four-wheelers and two-wheelers. In this case the vehicle of the lender can be seized when there is non-repayment.
Loans Against Securities
The investors often invest in shares and it can include the mutual bonds and debentures and shares. To borrow money the investors are eligible from banks and financial institutions.
Loans Against Property
The borrowers can avail of funds this is a kind of mortgage loan with the lender. It can be availed of against the commercial and residential property.
Title loans
Against their vehicle the lenders provide loans in title loans. The vehicle can be handed over as the collateral security and it can borrow up to 25% to 50% of the value of their vehicle.
Non-recourse Loans
The borrowers can provide collateral security and this is the type of secured loans for borrowing the funds. The lenders can seize the collateral security and they have the right to seize. One of the key-feature of a non-recourse loan is that the lenders cannot proceed against the borrower and do not provide full compensation.
Types of Unsecured Loans
There are different types of unsecured loans that can be availed:
Personal loans
Without any collateral security personal loans are extended by financial institutions or banks. It does not require any collateral security and it is the key feature of the personal loan.
Short-term business loans
The business can strike anytime with the uncertainty. If the business is facing a financial crunch then these bank loans are structured to meet short-term business loans. The eligibility criteria are the amount of loans and it can be disbursed that depends upon the profitability and the profile of the borrower. The interest rate should be anywhere between 1% and 1.5% per month.
Education loans
As we all know that the cost of education is rapidly increasing if you want to pursue quality education. The interest rate on the education loan starts from 8.85% per annum. It depends upon the amount and cost of education. After completion of the education the repayment for education loans are usually for 12 months.
Credit cards
There are many banks that offer credit cards and these tools get you to spend using the credit card without any cash flow. The grace period of the credit card provides the time for repayment to the credit card holder. These are of unsecured nature. The interest rate of these credit cards are between 18% and 36% per annum. The major drawback of this card is that it demands a high interest rate.
Conclusion
There are different types of loans secured and unsecured loans against all categories and where it can avail of different types of loans. To get the loans there are some criteria that must be fulfilled that can be that one should be a citizen of India. One should be of the minimum age and maximum and the loan that one can have maximum loan tenure. The facilities that are provided demand loans or EMI and some can only be availed by the salaried employees, professionals and directors of any company. For student loans you should be an Indian national.