What is Secured and Unsecured Loan: A loan is essentially an amount borrowed with a promise of return within a specific tenor. The lender sets a fixed rate of interest that you pay on the borrowed money. These days, loans can be used for various things like it can be used to finance a startup to buy appliances for your newly purchased home.
There are different types of loans by banks in India, and they are classified into two factors based o the purpose they used for i.e. secured loans & unsecured loans. Lets talk about the types of loans available in India and their specific characteristics that make these loans useful to the customers.
What is Secured Loan?
Secured Loan: It is a loan given by a financial body where an asset is used as collateral or security for the loan. The interest rate of secured loan tends to be lower as compared to those for loans without collateral. Some secured loans are – Car Loan, Home Loan, Gold Loan, etc
Types of Secured Loan
We learned what is secured and unsecured loan above, now here is the list of secured loans –
1. Home Loan
A home loan is a type of loan that provides you with the finance required to buy or construct of your dream home. Prime Minister Narendra Modi’s Pradhan Mantri Awas Yojana has given a major catalyst to home loans in India. One can apply for a home loan online in few steps. These loan come with longer tenures at least 20 to 30 years. There are some of the top banks in India that offered rates with their home loans start at 8.30%.
2. Gold Loans
A gold loan is a type of loan where the bank takes your gold as collateral for the loan tenure. The loan amount provided is a fixed percentage of gold, usually up to 80%, based on the current market price and quality of the gold. A gold loan is a short term needs and have a short repayment tenor as compared to home or property loans.
3. Loan Against Property (LAP)
It is one of the most common forms of secured loan. To take loan against property loan, you need to mortgage any residential, industrial property. The loan amount disbursed is equivalent to a fixed percentage of the property’s value and varies between lenders. Some lenders offer an amount equivalent to 50-60% of the property value while others may offer an amount closer to 80%.
What is Unecured Loan?
Unsecured Loan: As the name suggests, this type of loan is not secured by collateral like land, gold etc. These loans are relatively risky for the lender and are therefore associated with higher interest rates. Some unsecured loans are – Personal Loan, Education Loan, Short-term-Business Loan, etc.
Types of Unsecured Loan
We discussed what is secured and unsecured loan above, now here is the list of unsecured loans –
1. Personal Loan
A personal loan is one of the most popular types of loans by banks that offer to their customer. One can take this loan for their needs like education, marriage, health etc. The interest rate of personal loan is higher than secure loans. Before approving the personal loan amount, the bank needs certain documents such as income proof, proof of assets, etc. The borrower must have sufficient assets or income to repay the loan amount.
2. Education Loan
An education loans is a type of loan designed to help students pay for higher education and related fees, such as tuition, books and supplies, and living expenses. Students who have a dream to study abroad from prestigious institutions can take this loan. It can be taken for a full-time, part-time or vocational course along with graduation & post graduation courses in engineering, management and medicine. After completion of the course students can repay the loan amount.
3. Small Business Loans
A Small Business Loans another types of loans by banks that are provided to small and medium scale business to meet various business requirements. It is a type of unsecured loans. These loans can be used for various purposes that help in business growth. This may include purchasing some equipment, purchasing inventory, paying off business debts, etc.