A Complete Guide to the Different Types of Loans Available in India

At some point, each of us has likely considered starting an ambitious business, embarking on a home improvement project, completing an unfinished degree, or going on a dream vacation. For various reasons, we often explore financing options to help realize these aspirations to achieve various goals in life.

In India, there are loans tailored to meet every need. The lending landscape has become fiercely competitive, with new players such as NBFCs, micro-financiers, and FinTechs entering the market. Additionally, digitization has further fuelled demand in the industry. This piece aims to enlighten you on the various types of loans available, along with their eligibility criteria and required documentation.

Let's understand more about it in depth.

Home Loan

A Home Loan helps you buy a home of your dream home. There are now more companies that offer home loans, giving you more choices for lenders. Owning a house can make you feel more secure and like you have something valuable for the future.

Loan Against Property

A Loan Against Property (LAP) is a common type of loan where you use your property as security to borrow money. In simple terms, you pledge your property to the lender to get a loan. Lenders usually give you 60% to 70% of your property's value as a loan amount. So, if your property is worth Rs. 1 crore, you could get a loan of INR 60 - 70 lakh.

Since LAP is a secured loan, the interest rate is relatively low. You can use this loan for various purposes, such as funding your child's education, marriage, or expanding your business.

Business Loan

A Business Loan is used to acquire funds for business purposes. It helps businesses manage short-term capital shortages, address working capital needs, or invest in new technology to capitalize on market opportunities.

Business loans typically are unsecured loans and do not require collaterals. They have a quick loan approval process resulting in a fast and convenient way for businesses to meet their financial needs.

You may also like to read: Different Types of Business Loans in India

Personal Loan

A Personal Loan is a type of unsecured loan that provides funds for various purposes such as vacations, medical expenses, or financial emergencies. You can obtain a personal loan from a bank or a non-banking financial company (NBFC). Because it doesn't require collateral, the interest rate for a personal loan is typically higher.

Things You Need to be Mindful of as a Borrower

Whether you're applying for a Personal Loan, Loan Against Property, Business Loan, or Home Loan, certain factors are crucial for borrowers to keep in mind:

1. Informed Decision-Making: Compare loan products based on factors like loan amount, interest rate, repayment tenure, flexibility, and post-sales service. Understand the terms and conditions before signing any documents.
2. Credible Lenders: Choose a reputable lender who offers competitive interest rates and additional benefits like parallel funding, ensuring you can achieve your goals without risking your financial stability.
3. Healthy Financial Habits: Check your credit score before you apply for a loan; a score above 750 is considered good. A good credit score speeds up the loan approval process and increases your chances of securing a competitive interest rate.
4. Loan Repayment Capacity: Assess your financial capability to repay the loan. Consider factors like your income stability, existing debt obligations, and monthly expenses to ensure you can comfortably manage the loan repayments.
5. Loan Repayment Tenure: Choose a loan tenure that aligns with your financial goals and repayment capacity. A longer tenure may reduce your monthly EMI but result in higher overall interest payments.
6. Loan Insurance: Consider opting for loan insurance to protect yourself and your family from unforeseen circumstances that may affect your ability to repay the loan, such as job loss, disability, or death.

Now that you know about various types of loans, choose and apply for a loan based on your requirements to fulfil your financial needs.

Also Read: Borrower's Checklist for Loans

Godrej Capital is the financial services arm of Godrej Group which offers Home Loans, Loan Against Property and other secured loans. With innovative products and offerings, customers can get hassle-free loans on easy terms and conditions. Click here to know more about the offering.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially.
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