In India, people borrow money for many reasons – buying a house, paying for education, starting a business, or even handling a medical emergency. Banks and NBFCs (Non-Banking Financial Companies) offer many loans to help people in such situations. These loans can be divided mainly into two big categories – secured loans and unsecured loans.
Let us understand these two categories and explore all the popular loan types available in the country.
What Is a Secured Loan?
A secured loan is one where you give something as security or collateral to the lender. This could be your Property, gold jewellery, or even your car. If you fail to repay the loan, the lender can take this asset to recover their money.
These loans usually have:
- Lower interest rates
- Higher loan amounts
- Longer repayment time
Let’s take a look at the standard secured loans available in India.
1. Home Loan
A home loan helps you buy, build, or renovate your house. This is the most popular secured loan in India.
- Collateral: The house you are buying
- Loan Tenure: 15 to 30 years
- Interest Rate: Around 8.40% to 15% per annum
The lender gives you a significant amount, which you repay over a long period in EMIs. If you fail to repay, the bank can sell your house.
2. Car Loan
A car loan helps you buy a vehicle, whether a car, a bike or even a commercial vehicle.
- Collateral: The vehicle itself
- Loan Amount: Up to 85% of the vehicle’s ex-showroom price
- Interest Rate: Lower than personal loans
- Tenure: Usually up to 7 years
Car loans are easy to get with simple paperwork. Lenders often give loans within 1–2 days of application.
3. Gold Loan
Gold loans are short-term secured loans where you pledge your gold jewellery to borrow money.
- Collateral: Gold ornaments
- Interest Rate: Between 8% to 18% per year
- Loan Period: Usually 6 months to 2 years
This is a quick option for urgent financial needs. If you don’t repay on time, the lender can sell your gold.
4. Loan Against Property (LAP)
A Loan Against Property is when you mortgage your house, shop, or office space to get a large loan.
- Collateral: Residential or Commercial Property
- Interest Rate: Around 8.40% to 12.50%
- Usage: Business, education, or any personal need
These loans have long tenures and are suitable for significant needs like funding a startup or sending children abroad.
5. Loan Against Securities
You don’t always have to sell your investments to raise money. You can pledge your shares, mutual funds, or insurance policies to get a loan.
- Collateral: Stocks, mutual funds, insurance
- Loan Amount: 65% to 85% of asset value
- Interest Rate: Usually less than personal loans
You can continue to earn dividends or returns even while your assets are pledged.
What Is an Unsecured Loan?
An unsecured loan does not need any collateral. The bank gives you the money based on your credit score, income, and repayment history.
Because there is no security, lenders charge a higher interest rate. These loans are approved faster, but can be smaller in size.
1. Personal Loan
A personal loan is a multipurpose loan. You can use it for:
- Marriage
- Travel
- Medical emergency
- Education
- Any personal reason
- Interest Rate: 8% to 15%
- Tenure: 1 to 7 years
No collateral is required. You need a stable job and a good credit score to get approval.
2. Education Loan
Education loans help students pay for college, both in India and abroad.
- Coverage: Tuition fee, hostel, books, flight tickets
- Interest Rate: 8% to 16%
- Special Feature: Moratorium period (no EMI during study time)
You can apply jointly with a parent or guardian as a co-borrower. After completing your studies, you start repaying.
3. Credit Card Loan
If you already use a credit card, your bank might offer a personal loan up to your card limit.
- Loan Amount: Based on your card limit
- Interest Rate: Very high, sometimes up to 53% annually
- Tenure: Flexible but short
This should be your last option due to the high cost and is suitable only for extreme emergencies.
4. Short-Term Business Loan
Small business owners often need quick money for working capital, equipment purchase, or expansion.
- Interest Rate: Varies based on credit profile
- Tenure: Usually less than 3 years
- Collateral: Not required
These are quick-disbursal loans that don’t need much documentation. Ideal for small shops and MSMEs.
5. Flexi Loan or Overdraft Facility
A Flexi loan is like a credit line. You are given a limit and can use any amount from it anytime.
- Interest Charged: Only on the used amount
- Usage: Withdraw and repay multiple times
- Best For: Businessmen or salaried people with variable needs
It offers complete flexibility; you can even reduce your EMI by repaying early.
Choosing the Right Loan: What Should You Think About?
Before taking any loan, always check the following:
- Interest Rate: Choose a lower rate to save money
- Processing Fees: Some loans come with hidden charges
- Prepayment Rules: Check if you can repay early without penalty
- Tenure: A longer tenure means lower EMI but more total interest
- Lender Reputation: Choose trusted banks or NBFCs
Final Word: Loans Are a Tool, Not a Trap
Loans are helpful when used wisely. But remember, you must repay them on time. Always borrow only what you need and can repay comfortably. Avoid taking too many loans at once.
Also, keep your credit score high by paying EMIs regularly. A good credit history can help you get better loan deals in the future.
