A loan is a money borrowed by an individual or a business from an approved lender against a promise of returning the money in a pre-specified tenure against an interest component in addition to the principal. The interest rate and tenure depend on many factors like the type of loan, ticket size, and credit history.
There are various types of loans that can broadly be divided into these two following categories:
- Secured Loans
- Unsecured Loans
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Secured Loans
As the name suggests, secured loans require some collateral wherein you have to pledge an asset as a security for the money that you are taking as a loan from the lender. The interest rate charged under the secured loan is much cheaper as compared to an unsecured loan. These are the various types of secured loans:
- Home Loan: This loan is used to purchase your dream home. As it is a large purchase, a loan helps mobilize funds.
- Loan Against Property: Under this category, an individual can pledge any residential, commercial, or industrial property to get the required funds. The loan amount sanctioned is a certain percentage of the value of the asset being pledged.
- Loan against Insurance Policies: Rather than property, this type of loan is taken by pledging insurance policies. You can only take a loan against endowment and money-back policies. Any policy wherein the policy has gained surrender value and not against term insurance wherein there is no maturity benefit.
- Gold Loans: As the name suggests, you can pledge gold ornaments or coins as collateral and the loan amount sanctioned is a certain percentage of the value of the asset being pledged.
- Loan against shared or mutual funds: Your holdings in share markets and mutual funds can also be pledged to get a loan. Usually, the loan amount ranges from 60-70% of the shares or mutual fund units pledged.
- Loan against Fixed Deposits: You can also pledge your FD for a loan value of 70-90% of the FD maturity value. The loan tenure cannot be more than the tenure of the FD.
Read also: Choose a Personal Loan to manage the expenses of your home renovation
Unsecured Loans
This type of loan does not require any asset to be pledged as a security to the lender. There are several factors like your annual income, credit history, and score, etc that are at play which decide the tenure and ticket size of the unsecured loan being offered. These are the various types of unsecured loans that you can opt for as per your requirement:
- Personal Loan: A personal loan is the most popular unsecured loan that offers instant liquidity. It can be used for both personal and professional purposes.
- Short-term Business Loan: This type of loan can be used to meet day-to-day expenses and the organization’s requirements.
- Flexi Loans: Under this category, you get an approved limit and you can take as much money from the approved limit from the lender and pay interest only on the amount taken as a loan. This gives you better control over your finances.
- Education Loans: Under this category, a loan is usually taken for higher education. The loan covers fees and other allied expenses like accommodation, exam fees, etc. The student is the primary applicant while parents are made a co-applicant.
- Vehicle Loans: This can be taken in form of a four-wheeler or two-wheeler loan. It can be taken both for a new and a used vehicle.
