LOANS : BASIC INFORMATION OF LOANS
Loans are when you borrow money from a bank or a money place. They charge extra money called interest. Some people borrow money when they need it, others borrow to help their businesses. There are different types of loans, and people can pick the one that works for.
Loans: Different types of loans
Loans are majorly divided into 2 categories,
Secured Loans
Secured loans are when you borrow money, and to get it, you have to give something valuable as a guarantee. It could be your house or something else valuable. If you can’t pay back the money, the lender can sell the valuable thing to get their money back. Because there’s less risk for the lender, secured loans have lower interest rates than unsecured loans.
Unsecured Loans
Unsecured loans are different from secured loans. With unsecured loans, you don’t need to give anything valuable as security. Instead, the lender looks at your income, future earnings, and credit history. Because there’s no guarantee for the lender, unsecured loans have higher interest rates. If you can’t repay, the lender doesn’t have something to sell to get back the money.
Types of Secured Loans
List of some secured loans are given below
Gold Loan
Gold loans are when you borrow money using your gold as a guarantee. You give your gold to the lender, and they keep it until you pay back the loan. The interest on gold loans can start from 7.50% per year. Usually, you only need to pay the interest each month, and you can repay the main amount whenever you want. Once you pay it back, you get your gold back. Until you pay it back, you have to keep paying interest every month. The lender can give you a loan of up to 90% of your gold’s value.
Vehicle Loans
These loans are for buying vehicles like cars, bikes, or trucks. The vehicle itself is like a promise to the lender that you’ll pay back the money. If you can’t, they can take away the vehicle. The interest on these loans can start from 7% to 7.5% per year. The amount they can lend you depends on the type of vehicle. Sometimes, they might even give you a loan for the whole value of the vehicle.
Property Loan
This is a type of loan where you can get money by using your property as a promise to the lender. It works for both homes and business properties. The fees for this kind of loan are more than for home loans. You can use the money for business or personal reasons. The lender might give you up to 65% to 70% of your property’s value. The interest rates are a bit higher than home loans, starting from 8% per year.
Loan Against Securities
People who invest often put money in things like shares, mutual funds, bonds, and debentures. They can borrow money from banks using these investments as a promise. Since these investments can change in value a lot, the bank might only give them half of the value as a loan. This is to make sure the bank doesn’t lose too much money if the value goes down. The interest rate for these loans also changes based on the type of investment, starting from 7.50% per year.
Home Loans
Home loans are the most common type of loans people get when they want to buy or build a house. The house itself is like a promise to the bank that you’ll pay back the money. Sometimes, the bank might ask for extra security, like a fixed deposit or another valuable thing, depending on your situation and the house’s value. These loans last a long time, usually from 10 to 25 years, and they can be big loans. The interest rates start from 7% to 7.5% per year, and you pay back the loan in monthly installments. The bank might lend you up to 80% of the house’s value.
Loan Against Fixed Deposits
Banks and money places give loans to people who have fixed deposits. The fixed deposit is like a promise that the person will pay back the money. Because the fixed deposit is like having money in hand, the bank doesn’t worry much about losing money. People can borrow around 60% to 75% of the fixed deposit value. The interest rates can be different – some banks charge a fixed amount, while others charge 1%-2% more than the fixed deposit rate. Right now, the fixed deposit rate is between 5% to 7.5% per year, depending on how much and for how long. So, loans against fixed deposits are considered one of the cheaper kinds of loans.
Loan Against Insurance
Loans against insurance policies are quite popular in India. If you have a life insurance policy, you might not realize that it can be used as security to borrow money. To get a loan this way, your policy needs to have a surrender value. They might lend you 85% to 90% of the policy’s value. The interest rates can start from 10% to 12% per year.
Working Capital Loans
Working capital loans are given by banks and money places to assist businesses with their everyday money requirements. It’s also called Cash Credit. The amount of loan a business can get depends on the money it’s owed, the money it owes, and the goods it has for sale, which together make up its working capital. Each bank has its own way of figuring out how much working capital a business can get. The interest rates for these loans can start from 12% per year. Even though the goods and money owed act as a promise in case the business can’t pay back, the bank might also ask for extra security.
Types of Unsecured Loans
List of some unsecured loans are given below
Personal Loan
Personal loans are really popular in India. They are loans given by banks or money places without needing anything valuable as a promise. It’s basically a loan based on how much money you make. The cool thing about personal loans is that you can use the money for anything you want—like medical emergencies, weddings, kids’ education, buying things, or even travel. How much you can borrow depends on how much you earn and your credit score. The interest rates for personal loans can be anywhere from 8% to 10% per year.
Short-term Business Loans
Businesses can face unexpected problems at any time. If a business is going through a tough time with money, it can get a short-term business loan. These are bank loans designed to help businesses during short-term money troubles. The rules for getting these loans are simple, and the amount you can get depends on how well the business is doing and your own financial history. The interest rates for these loans can be around 1% to 1.5% each month, which is 12% to 18% per year. Business loans usually have higher interest rates than personal loans because there’s a chance the business might not be able to pay back the money, and in that case, the risk is on the lenders.
Loan on Credit Card
Banks give out credit cards, which are handy because you can buy things without using actual money. You get some time to pay the bank back, called the grace period. But, credit cards are a type of loan, and they don’t need any security. If you can’t pay the money back in time, it becomes an unsecured loan, and that’s not so good. One big problem with credit cards is that they have really high interest rates—anywhere from 18% to 36% per year. Just like other loans, using credit cards can affect your credit score.
Education Loan
Getting a good education can be expensive, with costs going up quickly. If you want to study something good, you might need to spend a lot of money. In such situations, you can get help with an education loan. The interest rates for these loans can start from 8.85% per year, and how much money you can borrow depends on how much your education costs. Usually, you start paying back the loan about a year after you finish your studies.
Conclusion
There are many banks, nbfc (non banking financial institution), private financers in market. One can avail any of them as per requirement. Loans are very helpful in terms of personal need.
