The loan is a financial product which can either be fund based or non-fund based provided by the banks and non-banking financial companies to the applicant who applies for it in order to fulfil the requirements and in return the total borrowed amount to be returned along with the amount of interest fixed within the stipulated period of time. There are different types of loans provided by banks and NBFCs, but in general, they are majorly categorized into two parts SECURED loans and UNSECURED loans.
Different Types of Loans in India:
The two major categories of loans are conceptually very different from each other as both are having their unique features and purposes. A secured loan is a loan provided by banks and NBFCs by mortgaging either one or more immovable fixed assets in the form of self-owned residential or self-owned commercial or self-owned industrial properties.
Hypothecations of the moveable fixed assets are also considered secured loans. Secured loans are availed by the borrowers from the banks mainly to incur expenses which are mostly capital in nature. The different types of loans which are considered as SECURED LOANS that a person can avail from banks and NBFCs are as follows:
- Home Loan
- Loan against property (LAP)
- Working Capital Loans
- Machinery and Equipment Loans
- Term Loans
- Vehicle Loans
- Agricultural Loans
- Consumer Durable Loans
- Gold Loans
The unsecured loans are provided by the banks and NBFCs without any mortgage of the immovable fixed assets or hypothecation of moveable fixed assets and on the basis of the financial eligibility and banking transactions of the applicant as set as per the policies of the lender banks or NBFCs. The different types of loans which are provided by the banks and NBFCs as unsecured loans are as follows:
- Term Loans
- Working Capital Loans
- Agricultural Credit Cards
- Personal Loans
- Business Loans
- Loans against Credit Cards
India is considered as the land of unity in diversity and this quality gets reflected in different types of loans provided by the banks and NBFCs as well. Every product of a loan whether it is a secured loan or an unsecured loan has got its unique features and is universally suitable to fulfil the requirements for which it has been applied.
There are different types of loans which are available in the modern age of the Indian banking system of which some loans that are very much popular have been briefly discussed:
Personal Loan:
Personal loans are preferably the most vastly applied loans among all the different types of loans provided by the banks and NBFCs to salaried persons, to fulfil the urgent needs of funds to meet the expenses like medical emergencies of family members or for the quick renovation of a house or to meet the wedding expenses etc.
These loans are provided by the banks and NBFCs based on the credentials and the credit worthiness of the applicant subject to the financial eligibility. The rate of interest charged on personal loans always remains on the higher side and varies as per the profile of the applicant. It is provided for a fixed tenure as per the policies of the lender bank or NBFC.
Unsecured Business Loan:
Unsecured business loans are very much popular in India of all the different types of loans that are provided by the banks and NBFCs to both self-employed professionals and self-employed non-professionals for the development of their profession or business as the case may be. The unsecured business loans are availed by the borrower for a fixed tenure which varies as per the policies of the lender bank or NBFC.
The rate of interest is floating based on the repo linked rate (RLR) and always remains on the higher side compare to other loans. The loan is approved as per the credentials and credit worthiness of the applicant and the amount of loan disbursed depends on the financial eligibility of the borrower.
Home Loan:
Home loan is considered to be the cheapest of all the loans present in the Indian banking system among the different types of loans. This loan is provided by the banks and NBFCs either to buy a new residential property or a resale residential property of for the construction or renovation of self-owned residential property or for plot purchase and self-construction of residential property.
The property for which the loan is provided is to be used only for residential purpose and nothing else. The loan amount is calculated on the valuation of the property which can rise up to 90% of the property valuation subject to the financial eligibility of the applicant which is calculated on the basis of the income-related documents.
The rate of interest is also offered as per the credentials and credit worthiness of the applicants. The tenure of the loan can be very long depending upon the age of the applicants. Every loan comes with an option of foreclosure which is chargeable except in case of a home loan where there are no foreclosing charges.
Loan against property (LAP):
Loan against property (LAP) is one of the most popular secured loans among the different types of loans available in the banking industry after home loans. It is availed by both salaried persons and self-employed professionals or self-employed non-professional persons. But the purposes of availing loan against property (LAP) are different from person to person.
In general, salaried persons avail loan against property to avail higher loan amounts at lower rate of interest with longer tenure compare to that personal loans to fulfil the purposes like medical emergencies, home renovation, and repayment of other debts which been availed at higher rates of interest or children educational expenses or wedding expenses of own or family members.
Whereas self-employed professionals or self-employed non-professionals avail to increase the volume of the profession or business by infusing more fund in it. Banks and NBFCs always prefer self-employed professionals or self-employed non-professionals ahead of salaried persons to provide loan against property.
In case of a loan against property, an applicant is allowed to mortgage either a self-owned residential property or a self-owned commercial property or a self-owned industrial property. The rates of interest are a bit higher compared to that of the home loans and tenure varies between 10 to 15 years are per the policies of the lender bank or NBFC.
Working Capital Loans:
Of all the different types of loans present in the banking system working capital loans are provided only to self-employed non-professionals who can be a manufacturer or a trader or service providers on short-term basis in the form of fund-based loans like CASH CREDIT or OVERDRAFT and non-fund-based loans like BANK GUARANTEE or INVOICE FINANCING, LETTER OF CREDIT etc. solely to meet the expenses required for the business operations. Working capital loans may be secured and unsecured for a maximum tenure of 12 months on a renewal basis.
Gold Loans:
Gold loans are one of the most frequently availed loans among the different types of loans available in the present day where in general gold ornaments are kept as security by the lender bank or NBFC to provide loans to the borrower either on interest basis or EMI (equated monthly instalment) basis for a fixed tenure and can be renewed as per the policy of the lender bank or NBFC and requirement of the borrowers.
Consumer Durable Loans:
Consumer durable loans are probably the most availed loans in India among all the different types of loans which are available in the banking system to purchase anything which are used for both household as well as business purposes like TV, REFRIDGERATOR, COMPUTER LAPTOP, MOBILE PHONES, AIR-CONDITIONERS etc. on EMI basis for a tenure which may vary from 6 to 12 months.
Vehicle Loans:
The post pandemic period in India has made the citizens of our country more serious of possessing their own vehicles either in the form of two-wheelers or in the form of four-wheelers. So banks and NBFCs have become very active in providing vehicle loans from the list of different types of loans to vehicle owners in no time. Vehicle loans are provided for both private vehicles as well as for commercial vehicles.
Among the different types of loans that are available with the banks and NBFCs the term loans that are provided against the collateral securities in the form of immovable fixed assets like self-owned residential properties or self-owned commercial properties or self-owned industrial properties or moveable fixed assets like plants, machineries etc.
based on the financial eligibility of the applicant and valuation of the properties generally known as mortgage loans. Of all the different types of loans, mortgage loans are secured loans and may be for short-term working capital loans like CASH CREDIT, OVERDRAFT etc. or long-term loans like LOAN AGAINST PROPERTIES (LAP), HOME LOAN etc. In case of a mortgage loan against immovable fixed assets, a charge is created for the assets to be mortgaged whereas the moveable fixed assets are hypothecated for the loan.
There are different types of loans where at least an immovable fixed asset is required as a mortgage. Whether it is a short term or a long term every mortgage loan has got its unique features and selective purposes for which the loan is provided by the banks and NBFCs. These features and uniqueness of the mortgage loans have been summarised below to give a clear visionary of the subject of different types of loans:
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In general short-term working capital loans are provided to self-employed non-professionals who can be manufacturers or traders or service providers only, by the banks with or without the hypothecation of inventories and book debts along with mortgaged collateral securities in the form of immovable fixed assets like self-owned residential properties or self-owned commercial properties or self-owned industrial properties are not termed as mortgage loans because these are provided to the borrower for a maximum period of 12 months on a renewal basis only to meet the gap of working capital needed for the regular operational expenses of the businesses.
But since there is a huge role in the valuation of the properties that are mortgaged to determine the eligibility of the loan amount that is why it can be termed as a short-term mortgaged working capital loan.
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The long-term secured loan that are provided by both the banks and NBFCs to both self-employed professionals and non-professionals and salaried preferably against the self-owned residential properties or self-owned commercial properties for a term which may vary from 10 to 15 years.
Long-term mortgaged loans are provided for different purposes depending upon the profile of the applicant. In the case of self-employed professionals or self-employed non-professionals, the end use of the loan amount can be for further development of the professional or business activities of the applicant to achieve future prospects or for any such purposes as purchasing or constructing a new residential property, renovation of existing residential property, medical emergencies, wedding expenses etc.
But in the case of a salaried person, the purpose of the loan can only be for purchasing or constructing a new residential property, renovation of existing residential property, medical emergencies, wedding expenses etc.
There are different types of loans for businesses which are provided by banks and NBFCs. They can be both unsecured and secured term loans. The tenure for unsecured business loans vary from 2 years to 5 years whereas the tenure can be extended up to 10 years in the case of secured business loans.
Apart from the conventional term loans a new product in the form of DROP LINE OVERDRAFT (DLOD) has been introduced in the recent past by the banks and NBFCs where the loan amount provided in the existing bank account of the borrower as a credit limit for a fixed tenure and after every month the credit limit gets reduced by the principal amount calculated by dividing the total loan amount by the total number of months for which the loan been provided.
The interest portion on the withdrawal part from the total credit limit so set has to be paid by the borrower from own fund. For example, if the loan amount is Rs.10, 00,000 given for a tenure of 60 months then every month the limit of Rs.10 lakhs will get reduced by Rs.16, 666.67 and the interest portion of the withdrawal portion to be served by the borrower from own fund as it will not be adjusted from the unutilised portion of the total limit.
The bouquet of different types of loans in the present day banking system in India has given ample opportunity to the applicants to select the product as per their profiles and requirements.
The banks and NBFCs have designed their products of different types of loans with full proficiency and expertise so that the borrowers find it suitable enough to fit the loan as per their model of income so that it does not create any undue hazard while paying the dues within the stipulated time.
