May 29, 2013

Different types of Loans in India-When to use them?

Motivation for this post is one of my client’s profile. Currently in India we have different types of loans available ranging from personal loans to marriage loans. But when to use which loan is a smart way of managing your money. Hence first let us look at different type of loans available.

1) Home Loan-Home loan as name suggest is the loan against buying property. Every individual currently have dreams to have their own home. To make affordable best option is home loan. Again their are sub-categories of home loans which are as below.

  • Home loan for residents
  • Loans for repairs and extension
  • Land purchase loan
  • Top-up loans
  • Loan for Earnest Money Deposits (EMD)
  • Reverse Mortgage Loans
  • Loan against property

You may also find different variant of home loans other than above. But I listed basic type of home loans.

2) Personal Loan-It is the loan granted to fulfill your expenses which ranges from buying some expensive electronic gadgets to booking your air tickets đŸ™‚ Yes people used to use this facility for anything they can. They forget that usually rate of interest on such loans will be higher than other types of loans. But still to have something in advance end up them to borrower of such type of loans. Here we may find two types of loans

  • Secured Loans-Where you provide some collateral as a safety against loans.
  • Unsecured Loans-In such type of loans borrower collateral not required.

3) Car Loan or Vehicle Loan-This is usually used to meet your financial requirement when one is planning to have his dream car or bike. It is usually a secured loan where collateral is your vehicle and in case of default lender may recover it by taking back your vehicle.  But some lenders offer unsecured loans where your credit score matters more.

4) Education Loan-This is actually a handy tool for parents who not planned well for their kid’s higher education. For a detailed view on this visit my earlier post “Know all about Education Loan features“.

5) Gold Loan-This was one of the easiest and fastest way of loan when gold rate was at it’s peak. But currently lot of lenders may not feel it better collateral due to falling in gold price, especially gold loan companies. Recently RBI banned any gold loans against gold ETFs and gold mutual funds. Eventhough it forms easiest and fastest way of getting loan but better to look for risks involved in it, especially when you are dealing with NBFCs.

6) Loan against Insurance Policies-You can use your insurance investment as either collateral or take loan from insurer itself if that policy is eligible for loan. Usually loans will be available after 3 years of policy period. You will get loan easily on your policy from insurer. But other method to take loan is to pledge your policy document with banks and take loan on that. LIC will offer you loan on your policy with the interest rate of 10%, which I think competitive pricing compare to other type of loans.

7) Loan against Bank FDs-This is one form of loan where your collateral is your bank FD itself. Suppose you have bank FD of around Rs.10,00,000 then you are usually eligible to get loan upto Rs.8,00,000. But interest rate will 1-2% higher than your FD rate. But still this form of loan is also fastest and best way.

8) Loan from PPF or EPF-You can avail loan from PPF when one satisfies certain conditions. For detailed view on the same visit my old post “PPF-Loan and Withdrawal“. You can avail loan from EPF too. But you can avail loan from EPF only for special purposes like purchase of plot, medical treatment, education or marriage of children, construction or purchase of house, re-payment of home loan, renovation of home or pre-retirement. But all are not eligible to take loans. Their are certain conditions like minimum years of completion, age or proof you need to produce. So it seems bit lengthy procedure.

9) Loan against Shares or Mutual Funds-Few lenders offer loan against your investment value of shares or mutual funds. But you will not get more value from this. Reason is, both the investments (if mutual fund is of equity oriented) then fluctuation in values will be high. Hence to protect their loan amount usually lenders offer less loan.

10) Loan from unrecognized sector-This is one of the easiest but costliest way of fulfilling your financial dream. Usually interest rate will be in the range of 20%-30% but you can get it immediately. Such type of loans are useful who are running out of time and not have any source also to fund their financial requirements. But looking at this option is costly affair. Hence it is highly advisable to avoid such funding.

Is their any thumb rule like how much percentage of income one should have loans? Yes to have control over your financial life, it is always advisable to have EMI outgo not more than 60%, this includes all loans one have taken. Otherwise you may be in financial mess. But taking all types of loans for which you are eligible is also a not wise decision especially in case of personal loans. People tend to attractive for easy offers and low EMIs but forget about the interest and processing fee costs involved on loan. Hence understand your priorities before going for loan.

55 Comments

  1. if i ask to cancel my loan application after how many days i can apply

    Reply
  2. how much amount i have to pay excess if i get loan through paisabazaar instead of hdfc branch directly they told 11.49% interest 1% processing fee

    Reply
  3. which is best loan bajaj fin flexi loan only pay interest as emi or nomal personal loan

    Reply
    • Nivas-I am not sure about the product you are mentioning. Check with Bajaj.

      Reply
  4. I am the President of society in which three Govt. recognized under graduate colleges is running. we have no property for mortgage. Can I get loan for renovation of colleges ?

    Reply
  5. Hello sir… I need a financial support for set up my business. Arround 40 lacks required,, how to get this by best option…

    Reply
  6. I would like to know if a student can get professional study/training loan in India? I am a MBBS student applying to US universities for electives which is a kind of internship straining for a month long. Can I get a loan to pay its tuition fee?

    Thanks.

    Reply
  7. I am appearing for the icici sr. officer post. can you please send me some important topic which can be asked in interview.

    Reply
  8. Sir .,

    I am Renuka Prasad T S , I have Interview in can fin homes loan ltd , please give me the tips or suggestions for my interview by the mail , please send any PPT or pdf files about the loans and deposit.
    [email protected]
    Thank u sir

    Reply
  9. Hello sir..I m also handling all banks and nbfc Dsa
    So plz suggest me how to increase my client base and my personal Banking and financial knowledge base

    Reply
    • Vishal-I am not here to guide how to grow your business and also not an expert.

      Reply
  10. I have not any assets, but i want to do business of fishing boat, i need 50 lakh rupess, can i get loan from anywere…?

    Reply
  11. I want to take loan on home..wt interest I paid to bank?..and how many amount I should take ?

    Reply
  12. Hello Sir,
    I am working in insurance broker in delhi which deals with total financial solution (Life GI loans etc..) from last six months but I dont have client base in delhi. Please suggest how to increase client base so that I can complete my targets and earn incentives because my salary is low and i am not able to earn incentives at present

    Reply
    • Azhar-Start to educate without conflict of interest. Client will come automatically.

      Reply
      • I am also getting pressure of target thats why i am not abe to concentrate on on work

        Reply
  13. Hi Basavaraj,

    I am 39 year old and was working as a salaried professional till April-2015 as a software professional. Since then I run a IT consultancy business (have ST number and do file ST returns) and haven’t yet completed a year.

    I have IT returns for last 5 years or more when I was working. However when I apply for a home loan, people say I don’t qualify since I don’t have my self employment IT returns for last 2 years.

    My loan requirements are pretty minimal (~20 % of property value) . Am wondering what are the options for me to procure a home loan?

    Thanks

    Reply
  14. sir i want 5 lakh loan.but I’m student.and iwant loan to help my dad for purchasing new home?is this possible??

    Reply
  15. What is a CAT loan?

    Reply
    • Jagadish-I don’t know about this. Can you let me know where you heard?

      Reply
  16. Dear sir,

    i have taken Mortgage Loan form Intagrel co oprative bank, jaipur. the loan against property @19.75%,is this ok or correct.now can i transfer into any other bank with lowest rate.

    Reply
    • Vikas-“This ok or correct”-What can I say? Check the same with nationalized banks for transfer of loan.

      Reply
  17. Hi,
    If I need a loan of 1lakh for short term like 3-4 months… What are the options in unrecognised sector… Can’t take loan from bank. There are no policies or FDs

    Reply
    • Vinit-No FDs or insurance policies, can’t take the loan from bank, then go for money lenders and try your BAD luck.

      Reply
  18. Sir,
    . I want to know about land purchase loan.
    I want to purchase a land which cost is approx 6,00,000. So sir please suggest me in detail that which type of loan best fitted for that?

    Reply
    • Nabhashwat-There are many banks lined up to give property loans. Check with them.

      Reply
  19. Sir i have one doubt..
    Is thr any type of loan for housewife to help husband in his bussiness

    Reply
  20. Can we get loan against Nsc

    Reply
  21. Sir suppose I have taken loan and I pays interest per month.if my business condition will be good in position then I repay some loan to the bank to low my interest .is it possible in personal loan or home loan.

    Reply
  22. sir,
    Please elaborate land purchase loan

    Reply
  23. Sir I have taken loan in co operative bank can it be top up in nationalized can bank can you help me in this reg

    Reply
    • Dear venkateshbabu k , you can get topuploan in nationalized as well as private banks also but topup willbe interest rate little high compare to home loan at the same time you need to Transfar your total loan to same bank

      Reply
  24. sir i want to know
    Is there any vocation loan for student?

    Reply
    • Joe-Even if they provide also, how you repay them as you are student and no own income? Sorry no such loan available currently in India.

      Reply
  25. I have assets ranging 30-35 lakhs. How much loan I can get?

    Reply
    • Guna-It depends on bank to bank. So I can’t point the amount exactly.

      Reply
  26. I want to take loan for my business can u teme which type of loan should I go for and from which bank

    Reply
    • Kanika-Opting loan depends on your current assets and based on that you can choose it. Without knowing your personal asset details how can I guide you?

      Reply
  27. Can you please explain Home-equity concept?

    Reply
    • Vidya-Thanks for commenting. Will publish the same on my next post in detail. In simple you may say it as a top up loans which we call in India. Hope you will wait till that period đŸ™‚

      Reply

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