Different Types of Bank Loans in India

Introduction

You don’t always have the money you need to buy what you want or do certain things. Thus, like most individuals, businesses, firms, and institutions, you decide to borrow money from lenders.

A loan refers to a specified amount of money that you can borrow from a lender while guaranteeing that you will repay the borrowed money. The lender gives you money at a specified rate of interest. You repay the borrowed amount with interest in installments according to the agreement between the two parties. 

Different types of loans in India

In today’s world, you can use loans for various things. You can use it to fund a startup, host a wedding, reconstruct your home, or buy a new house. Here, we look at the most popular types of loans and how they are useful to customers.

1. Personal loan

A personal loan is suitable for all purposes. For instance, you can use it to pay the debt, cover marriage expenses, or vacation expenditure. It does not require any collateral security. The lender offers the loan after accessing the individual’s credentials based on their profession or business. The repayment period lies between 12 months to 60 months, depending on the principal amount and the EMIs suitable to the borrower.

The interest rate starts from 10.65% per annum and varies from one bank to another. The borrower has to pay up to 2.50% of the loan amount plus GST as loan processing charges. The borrower can prepay the loan any time during loan tenure after payment of 12 or more EMIs with the payment of standard pre-closure charges of 5% plus GST.

2. Home loan

A home loan can help you to a large extent when you wish to purchase a house. It offers financial support and enables you to buy the house for yourself and your loved ones. The tenure of a home loan is generally longer, up to 30 years. The interest rate starts at around 6.75% per annum. The lender checks your credit score before approving the loan request. A person with a good credit score can enjoy lower rates of interest with a home loan.

The purpose of a home loan is to buy a new house. But you can also use it for home reconstruction, home extensions, under-construction houses, purchasing land property, etc.

3. Car loan

Buying a car is a sense of great pride, joy, and happiness. It is an asset and one of the biggest investments you’ll make in your life. With the help of a car loan, you can fulfill your dream of owning a car. To apply for it, you must have a high credit score. Approval of the loan application becomes much easier if you maintain a high credit score. Moreover, you can get a lower rate of interest with the loan.

A car loan is a secured loan. At any point in time, if you are unable to pay the EMI, the lender will recover the outstanding debt by taking your car back.

4. Business loan

This type of loan is for existing businesses or individuals aspiring to start a business. Since banks evaluate an individual’s credentials before approving the loan, it is a little difficult to get a business loan. To convince banks that your business can repay the loan in the future, you must have a defined business plan.

Additional Read: How to Get a Pre-Approved Personal Loan

Summary

A loan is an amount borrowed for a fixed period. You must repay the loan with the interest amount over a period decided by the financial institution. To avail of the best interest rate and smoothen the approval procedure, make sure you choose the type of loan suitable for your requirement.

Additional Read: How to Use Fixed Deposits to Get a Car Loan?