Which Types Of Loans Can You Get? Let’s Find Out

We often believe that those who are less than careful with their finances are the ones that need to borrow loans. But the reality is quite different – as careful as you are with saving money and investing it, as meticulous in filing your taxes and paying bills, there always comes a time when you run short of funds to buy things or pay for important experiences.

For example, buying a home. With real estate prices in the cities surging upwards despite the slump in the market, it is not surprising that most people wanting to buy a house are unable to do so. The best properties often cost over a crore – how many of us have ready capital in our bank accounts to spare? The obvious answer is to take a home loan so that one may pay to buy their dream home at last. Similarly, a car loan helps one buy a coveted automobile without waiting for years to save for it – by the end of it, the car may have become even more expensive, or the particular model may be discontinued!

Loans make it easier to realize your dreams today than defer for tomorrow, whether it is to pay for an expensive medical procedure or to buy a house. They can be repaid every month from your salary or business income. However, it is best to not have too many loans to your name at one time, because this reduces your repayment capacity by burdening your income with multiple EMIs. Also, it is easier to get unsecured loans in India if you are a salaried person instead of a self-employed one.

The following are 4 types of loans that individuals in India can get:

#1 Personal loans.

It is an unsecured loan offered to individuals by banks, NBFCs and loan apps in India. The loan is offered on the basis of the applicant’s income, credit score and past repayment history. Since it is an unsecured product, its rate of interest is slightly higher than that of secured loans like home loans. It is an unsecured loan because the lender does not ask the applicant for any collateral or physical security against the loan money. Indeed, this is the major benefit of taking the personal loan – you could take it for any reason, from buying an expensive vacation to paying for knee surgery, and the lender will not ask you to furnish a reason for taking the loan. Another benefit of taking the personal loan is that it is approved quite quickly, unlike secured loans. Thus, it helps to apply for it when you need emergency funds. The loan can be availed by salaried individuals though fast loan apps.

#2 Home loans.

A home loan is taken to purchase a home, whether a ready dwelling or an under-construction one. It is a secured loan product with a low rate of interest, and a high tenure (may go up to 25 years). The loan may be taken by a single individual or by a co-applicant, such as a sibling, spouse or parent. It is offered by leading banks and NBFCs in India, who are cautious about approving it – this loan has a higher number of defaulters than other loan categories. The loan issuing authority has a slightly tedious process for approval and disbursal – you cannot take the loan unless you have registered the property for sale and paid at least 20% of its value to the seller, the agreement copy must list a clear chain of agreements (in case of resale flat) or show the first purchase from a developer with a RERA registration, and it must not have any unpaid debt on it. The home loan is issued against a maximum of 75% of the house’s value, while the remainder must be paid from the applicant’s own reserves. Lenders have multiple teams at hand to check the applicant’s income and residence credentials, and to verify the property’s market value, among other factors.

#3 Vehicle loans.

The vehicle loan or auto loan is another common secured product for individuals. However, some companies might also avail of this loan, if they wish to buy a few vehicles for staff’s use. The eligibility criteria for auto loans are not as stringent as they are for home loans. The lenders do not insist on a permanent address for the applicant, since vehicle loans are also availed by those living in rented accommodations. However, like with home loans, the auto loan covers only about 75% of the vehicle’s value – the rest must be paid from your own pocket as a down payment.

#4 Education loans.

Higher education fees in India are steep, but parents wanting to send their children to foreign universities have an even bigger task at hand – to arrange for the exponentially higher tuition and other fees. The fees charged by higher education institutions in India and abroad can make a person go into debt, but not if one takes a good education loan. Education loans are offered by leading banks and some reputed NBFCs in India. However, the loan is granted only if the student applies to pre-approved institutes, and has a high degree of paperwork. The processing and approval time for this category of loan can range between four and eight weeks.

Conclusion

Taking a loan that meets a specific need, whether it is a personal loan or a car loan, provided you are aware of what the product means and how to repay it responsibly. Whatever the type of loan you avail of, the credit score and your current income status remain the two most important factors on which lenders base their approval.

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