Loans can be categorised based on collateral requirements and usage. There are multiple types of loans in India, each curated to suit different types of requirements. Nonetheless, despite their easy availability, individuals often fail to secure the required amount due to a lack of sufficient knowledge.
Based on the collateral requirement, loans can be divided into two major types – secured and unsecured. Following is a brief discourse on each of these variants.
- Secured loans – These loans require borrowers to pledge collateral to avail the amount applied for. The rate of interest is lower for secured loans compared to those without collateral.
- Unsecured loans – These loans do not require collateral. Financial lenders lend money based on the applicant’s credit history and score. Usually, unsecured loans come at a higher interest but against simple terms of borrowing.
Nonetheless, before applying for any of these loan types, every borrower in India needs to assess the difference between CIBIL score vs credit score and improve both the factors if they are not up to the mark.
Different types of secured loans
The different types of secured and collateral-backed loans are discussed below.
- Home loan: These loans are offered to borrowers to fund the purchase of a house or its construction. These loans can be availed at a lower interest rate and with a flexible repayment tenor. Individuals can avail this fund only to construct the purchase of the house and not to plan their home renovation.
- Gold loan: A gold loan demands the pledging of gold jewellery to avail funds. Gold loans are usually short-term loans and come with a tenor ranging up to a few months.
Types of unsecured loans
Here is a brief overview of different types of unsecured loans in India.
- Personal loan: It is one of the most frequently availed credits in India. Since it is an unsecured, the interest rates are marginally higher. Borrowers can use this credit to fund any purpose such as wedding, travel, education and more as it does not come with any restrictions. One may borrow money such as credit for paying the mounting bills of a hospital during any medical emergency.
- Business loan: It is unsecured credit, usually offered to fulfil the need of urgent business requirements. It can be used to expand an existing business, buy new equipment, shift the company to another city, etc. Business loans for MSME/SME, start-ups, traders, entrepreneurs etc., are some of its types.
Remember that borrowers must maintain a good CIBIL score of 750 and above to avail financing via unsecured loans.
If a borrower has a low credit score or no credit score, he/she can still avail an instant loan without CIBIL by pledging collateral, with the help of a guarantor, asking for a lower loan amount, etc.
Therefore, before applying, borrowers must know everything about CIBIL score for personal lending as it is one of the crucial factors considered by the lenders before sanctioning a loan amount.
Among all the types of loans in India, unsecured credit is the most popular in India. The funds obtained through a personal loan can be utilised to fulfil any requirements.
Borrowers can also enjoy special benefits through pre-approved offers extended by top financial institutions like Bajaj Finserv to ease the loan application process. These offers can not only be availed on unsecured loans but also secured options. One can check his/her pre-approved offer by submitting a few essential details.
These different types of loans necessitate borrowers to contemplate their fund requirement and adjoining conditions and opt for the most suitable option. For instance, if a borrower considers choosing a personal loan, the risk factor, liabilities, benefits, terms and conditions, and additional charges attached to it must be taken into consideration.