6 Different Types of Loans In India And All You Need To Know About Them
India has multiple financial institutions that are on their toes to help all individuals and businesses to boost the economy. By help, I mean different services, especially financing options. There are different types of loans offered by several banks and NBFCs scattered across the country. Let’s take a look at about 6 types of loans in India and learn everything you need to know about them.
6 Different Types of Loans In India
Home Loans
Personal Loans
Business Loans
Loans Against Property
Agricultural Loans
Car Loans
1. Home Loans
Home loans are financial products that allow people to borrow money from lending organizations in order to purchase homes. They can also be used for renovating homes. In India, the home loan interest rates range from 8.30% to 11% varying on the lender and the amount of money borrowed. Similarly, the duration of the loan would also depend on these two factors.
Typically, home loans involve a mutual agreement between the borrower and the lender, where the borrower receives a lump sum amount to purchase the property, and in return, the borrower agrees to repay the loan with interest over a specified period.
2. Personal Loans
Suppose you need funds to deal with anything like travel expenses, paying off other debts, or weddings, you can opt for a personal loan. Since the amount for these loans won’t be higher, the tenure for the same is also short. It could be as long as 1 year to 5 years.
The interest rates for such loans are between 8.55% to 13.86%. So the next time you’re having a crunch during emergencies or any other personal reasons, you know where to go. However, you need to be careful as personal loans can greatly affect your credit score.
3. Business Loans
If you’re a business owner and are in need of financial assistance, business loans are your savior. Be it secured or unsecured loans, you can use them to fund your business idea or to scale your business. Business loans can be availed in India at interest rates that range from 18% to 36%. All you need to do is produce the correct documentation and a good credit score, and you can get a business loan.
4. Loans Against Property
In this type of loan, the borrower pledges their property, such as a house, land, or commercial building, to the lender as security. Based on the value of your property, the lender will provide you with a loan amount as per the property’s appraised value. In comparison with unsecured loans, these have a lower interest rate.
These rates might vary from 8.75% to 16% depending on the financial institution you choose. In case you end up defaulting on repayment, the lender has the right to auction your property off. So, make sure you make timely payments.
5. Agricultural Loans
Being a country known for having a vast agricultural background, there still exists a healthy farming community in the country. To help these communities with crop production and managing other expenses like labor, equipment, etc. financial institutions offer agricultural loans.
Compared with other loans, these loans generally have a lower interest rate. The interest rates for these loans can start from around 7% and go as high as 11% to 15%. Even the government provides the farming community with subsidized loan options to boost agriculture and enhance their livelihoods.
6. Car Loans
Most Indians go about purchasing a car by availing of a car loan. These loans could be used to purchase a brand-new car or even a pre-owned car. In these loans, generally, your car is itself the collateral in case of defaults. In India, car loan interest rates are between 7.30% and 14.75%. Certain financial institutions even allow the flexibility for borrowers to choose the duration of the loan based on their financial capabilities. Nowadays, car loans have become a common financing option when it comes to buying cars.
Conclusion
Several finance experts like Monika Halan (Chairperson for SEBI Advisory Committee for IPEF) and Abhay Bhutada (MD of Poonawalla Fincorp) emphasize the importance of financial literacy in India. Low financial literacy makes it challenging for people to understand different financial terms and concepts. Therefore, it’s essential to have a basic understanding of the different financial tools and options available in India.
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