Where Can You Find the Best Loans?

Banks offer various types of loans with varying features, benefits, and requirements. Navigating the world of bank loans can be like a puzzle, as some use collateral like gold or property as security, while others are unsecured, with no collateral required for an unsecured loan.

This blog discusses various types of loans offered by banks, including personal, car, home, education, and business loans, and provides advice on selecting the best loan for your needs and managing loan repayments effectively.

An overview of various loan types offered by banks

Banks provide a diverse range of loans, divided into secured and unsecured categories, offering a wide range of financial options.

Secured loans are a type of financial security

Secured loans require borrowers to pledge an asset as collateral, such as a home or car, as a safety net for the bank. They typically have lower interest rates and higher borrowing limits than unsecured loans, but also carry the risk of losing the assets. Examples include home and auto loans.

Unsecured loans

Unsecured loans are a form of financial security where the lender assesses a borrower’s credit score and income without requiring collateral. They typically have higher interest rates and lower borrowing limits, but do not risk assets, and are commonly used for credit cards and personal loans.

India offers various types of Secured Loans

1. Home Loan:– Home loans are used to buy a property as collateral, with a tenure of 15-30 years, varying between 8.40% and 15% per annum. The loan-to-value ratio covers up to 80% to 90% of the property’s cost, depending on the lender and borrower’s repayment capacity.

2. Gold Loan: – Gold loans enable borrowing by pledging gold ornaments or jewellery as collateral, with loan durations ranging from days to years and interest rates ranging from 8% to 18% per annum, depending on the lender and borrower’s preference.

3. Vehicle Loan:– Vehicle loans in India help borrowers finance their dream vehicles, such as cars, bikes, or electric vehicles. Lenders typically offer up to 85% of the car’s ex-showroom price, with the vehicle serving as collateral. Different vehicles in India qualify for different loan types.

4. Loan against property.– Loan Against Property (LAP) is a secured loan that enables borrowers to use their property as collateral for financial needs. Current interest rates range from 8.40% to 12.50% per annum, with lenders typically offering loans up to 75% of the property’s value.

5.Loan against Security:– This loan allows borrowers to use their securities as collateral instead of selling them. Lenders usually sanction up to 65% of the NAV of eligible shares and equity funds and up to 85% of eligible debt funds as a loan. Loan funds can be used for anything, but redemption is only possible after repayment.

6. Loan against PF/EPF:-A Loan against Provident Fund (PF) allows individuals to borrow money against their accumulated PF balance, without paying interest, but only for specific reasons like medical emergencies, home purchases, weddings, or unemployment.

7, Loan against Fixed Deposit:– A loan against fixed deposit (FDs) is a secured loan that can be obtained by pledging your FD account as collateral, typically up to 90-95% of the FD amount. The loan duration is the same as the FD tenure, with a slightly higher interest rate.

Unsecured loans available in India;-

Unsecured loans are based on a borrower’s creditworthiness, repayment ability, and income, without the need for collateral. Lenders face higher risk with unsecured loans, resulting in higher interest rates.

• Personal Loan :- Unsecured personal loans are versatile financial products suitable for various purposes like medical expenses, education, travel, weddings, home renovations, and debt consolidation. These loans are quickly disbursed and offer flexible repayment tenures from 12 to 60 months. Interest rates range from 8-15% per annum and depend on the borrower’s credit score, income, loan amount, and tenure. ET Money’s personal loan EMI calculator can help calculate monthly payments.

• Credit Card Loan:-Credit card loans, also known as pre-approved or instant loans, are available to existing card users based on their credit limit and repayment history. These loans can be accessed online or offline, with interest rates typically higher than personal loans, reaching up to 53% per annum.

• Education loans are financial assistance :- Education loans are unsecured loans for students pursuing higher education in India or abroad, covering tuition fees, living expenses, books, travel, and other course costs. These loans typically have lower interest rates, ranging from 8-16% per annum.

• A short-term business loan :- Unsecured business loans are available to entrepreneurs and business owners for working capital, expansion, or equipment needs. These loans are provided by banks, NBFCs, online lenders, and loan apps. The eligibility criteria, interest rate, loan amount, and tenure depend on the business’s nature, size, financial statements, credit score, and cash flow.

• Payday Loan :- Payday loans, cash advances, or salary advances are short-term financial aids for urgent needs, typically until the borrower’s next payday. These loans have high interest rates, ranging from 1% to 15% per day, and are often viewed as predatory lending practices by the RBI.

• Flexi loans allow borrowers to borrow up to a specific limit through overdraft or credit line facilities, with interest charged on the borrower’s used amount, not the lender’s sanctioned amount.

Distinctions between various loan types

Secured vs Unsecured Loan

• Secured loans require collateral, like a home or car, which lenders can seize if defaulted on, while unsecured loans don’t, but may charge higher interest rates and have stricter credit requirements.

• Secured loans provide lower interest rates, larger loan amounts, and longer repayment periods compared to unsecured loans.

• Unsecured loans usually offer faster approval, more flexibility, and less risk. of losing your property than secured loans.

Personal loan vs. Line of Credit

• A personal loan provides a lump sum upfront with fixed monthly payments, while a line of credit allows borrowing and repayment based on credit limit and variable interest rate.

• A personal loan is suitable for specific, known expenses, while a line of credit is suitable for ongoing or unpredictable expenses with varying amounts.

• Personal loans typically have lower interest rates than lines of credit, but often come with fees and penalties for early or late repayment, while lines of credit offer more flexibility and convenience.

compares the terms of a credit card loan and a personal loan

• Credit card loans are based on credit limit and repayment history, while personal loans are unsecured options for personal or professional use.

• Credit card loans have no fixed repayment schedule and can be repaid at any time, while personal loans have a predetermined repayment schedule and require monthly payments until the loan is paid off.

Conclusion

Banks provide diverse loans for personal goals, education, and business start-ups, enabling informed financial decisions by understanding available options.