We may earn money or products from the companies mentioned in this post.
No matter how meticulous we are with our finances, there comes a time in everyone’s life when they find themselves in need of some extra cash. Right from planned expenses such as weddings and home upgrades to unforeseen expenses such as medical emergencies, every such event requires a significant amount of money, for which people often turn to loans. If you, too, are thinking about taking out a loan, you can always count on a trusted money loan app such as KreditBee, but at the same time, it is essential to know about the various types of loans you can take and the differences between them. That is precisely what we will discuss in this blog post. Read on.
Types of Loans
Secured loans form a foundation in the lending landscape, requiring collateral to secure the borrowed amount. This collateral can range from real estate to valuable items like jewellery. The value of the collateral determines the loan amount, and interest rates are typically fixed, offering predictability in repayment.
The primary advantage of secured loans lies in their accessibility. The process is straightforward – borrowers need to provide proof of ownership for the pledged property or item, making securing the loan a quick and efficient process. Furthermore, the loan amount is often more manageable compared to more extensive commitments like mortgages, making secured loans an attractive option for those starting out with limited financial resources.
Unsecured loans, on the other hand, do not require collateral, making them one of the most common types of loans in India. This lack of need for security offers financial flexibility, as borrowers don’t have to risk their property or assets. These loans are typically obtained from banks or non-banking financial companies (NBFCs).
Interest rates on unsecured loans vary, ranging from 8% to 24% per annum, depending on the lender. Unsecured loans serve diverse purposes, providing much-needed cash for various needs such as buying a vehicle, settling debts, or addressing emergencies that demand quick financial solutions.
Types of Secured Loans
Home loans are a common type of collateralised loans that are offered to borrowers looking to buy or build a house. Besides having numerous qualification requirements, home loans also hold the purchased properties as collateral until the outstanding amount is paid in full. This means that if during the tenure of the loan, the borrower is unable to make the due payments, the lending body will have the right to enforce a foreclosure. In other words, one risks the chance of losing their property if they fail to pay the instalments on time.
Loan Against Property
A loan against property involves using one’s home as collateral. This secured loan allows borrowers to unlock the value of their property to meet financial requirements. While interest rates may be higher compared to other loans, they remain lower than unsecured options, and potential tax benefits may further offset costs.
For individuals with gold assets, a gold loan provides a quick and secured borrowing option. Usually utilised for short-term needs, these loans come with a shorter repayment tenure compared to other secured loans like mortgages. The gold pledged serves as collateral, simplifying the application process.
Loan Against Insurance Policies
In times of financial strain, insurance policies can be used as collateral for loans. This unique type of secured loan allows policyholders to tap into the value of their insurance policies to fulfil financial goals. It’s a potential lifeline for those in need of immediate funds.
Loan Against Mutual Funds & Shares
Investors can use their mutual funds and shares to secure loans. This approach allows individuals to leverage their investments, gaining access to funds for various life goals. Loans against securities provide flexibility in repayment options and often come with no prepayment charges.
Loan Against PF/EPF
Individuals with Provident Fund (PF) accounts can explore the option of obtaining a loan against their PF balance. While considered a premature withdrawal, such loans are subject to specific conditions, including medical emergencies, home purchases, weddings, unemployment, etc.
Loan Against Fixed Deposit
A loan against fixed deposit (FD) involves using the FD as collateral to secure funds. Borrowers can typically access a certain percentage of the total deposit amount, often up to 90-95%, depending on the bank’s policies. The interest rate for such loans is generally slightly higher than the applicable FD rate.
Auto loans are probably the most common type of collateralised loans available out there. Though the eligibility criteria for auto loans are not as stringent as they usually are for personal loans, they present a different set of concerns for borrowers. Firstly, when you take an auto loan, the vehicle bought using the money stays in the name of the lending body until the loan amount is paid in full with interest. Secondly, auto loans are generally approved to cover a “partial value” of the vehicle, which means the borrower has to arrange the down payment, which can be a problem for many people.
Types of Unsecured Loans
A personal loan is a versatile, short-term borrowing option designed to cover a range of expenses not addressed by other types of loans. Often used for emergencies such as medical bills or credit card debt, personal loans offer relatively low monthly payments. However, they come with higher interest rates. Lenders determine these rates based on factors like the borrowed amount, repayment period, and the borrower’s credit score. A good credit score can increase your chances of securing a personal loan.
Similar to personal loans, cash loans provide a quick and paperless borrowing process, with eligible applicants obtaining funds through the lender’s mobile application within minutes. This option grants flexibility in usage, allowing borrowers to address various financial needs without restrictions. The seamless, 100% paperless application process adds to the appeal of cash loans, making them a convenient choice for those seeking swift financial assistance.
Tailored for the agricultural sector, agricultural loans offer financial support for various farming-related activities. Financial institutions extend monetary aid to farmers nationwide, helping them meet the diverse financial requirements of their operations. These loans contribute to the growth of the agricultural sector by providing farmers with the necessary resources to invest in equipment, seeds, and other essentials.
Who doesn’t dream of getting a world-class education and being the best they can be? The problem, however, is often the steep fees charged by educational institutes. That’s when education loans come to the rescue. There are, however, a couple of things you should know. For one, all banks offering education loans have a list of pre-approved institutes for which they approve loans. If the institute you have chosen doesn’t belong on the list, the loan application will most likely be turned down. Secondly, these loans require significant paperwork, and due to a large number of applications, they usually have a prolonged processing time.
A flexi loan represents an unsecured borrowing option that provides borrowers with the freedom to access funds from an approved limit whenever needed. With no restrictions on the number of transactions, individuals can withdraw cash from their limit without incurring extra costs. Notably, interest on flexi loans is only applicable when the borrowed amount is utilised, offering a flexible and cost-effective financial solution.
Credit Card Loan
Credit cards stand out as a widely accepted and convenient means of payment, offering users the ability to make purchases globally. Beyond convenience, credit cards provide a reward system, allowing users to accumulate points and miles for future benefits. However, it’s crucial to recognise that using a credit card involves borrowing money from the bank, and delayed payments result in high interest rates. Responsible credit card usage is essential to avoid financial burdens associated with accumulating interest.
Short Term Business Loan
Designed for businesses facing temporary cash shortages, short-term business loans offer a maximum term of one year with flexible and negotiable interest rates. These loans can be instrumental in addressing working capital needs, such as inventory or equipment purchases. As unsecured loans, short-term business loans do not require collateral, providing businesses with financial support without risking valuable assets.
“Tough times don’t last, but tough people do” is a famous saying. To that, we say, more than tough, smart people last longer! If you need immediate cash, look no further than the best personal loan app – KreditBee. Download our app through the Google Play store and say goodbye to your financial worries. If you have any questions or would like to know more about our instant personal loans, simply call 080-44292200 or fill out our contact form. You can also email us at [email protected], and we’ll take it from there.