Today, loans have become an essential part of an individual’s financial journey. They can be utilized for a range of purposes such as funding higher education, infusing cash into business, purchasing a vehicle, or buying a house. Depending on the purpose and requirements of the borrower, banks offer different types of loans. Let’s look at some of the most common types of loans available in India:
1. Personal Loan
A personal loan is one of the most sought-after loans. The distinctive advantage of this loan is that it can be used for any purpose, be it funding wedding expenses, planning a family holiday or buying home appliances.
A personal loan is an unsecured mode of finance. It means you don’t have to pledge any asset as security to avail it. Being an unsecured mode of finance, interest rates on this loan are a little higher compared to others which require collateral.
2. Business Loan
As the name suggests, a business loan is targeted towards entrepreneurs to meet their business needs. Unlike personal loans which can be used for any purpose, this loan is taken specifically to meet business requirements which entail:
• Purchasing new machinery
• Improving working capital
The eligibility criteria for business loans differ across financial institutions. To obtain this loan, you need to have a business vintage and a certain turnover.
3. Home Loan
A home loan gives you the financial muscle to buy your dream home. It can also be used for renovation, extension or purchasing land where you intend to build your home.
Home loans are long-term commitments with tenures ranging up to 10-15 years or even more. These loans are disbursed either on fixed or floating interest rates and are linked to the bank’s marginal cost of funds-based lending rate (MCLR).
4. Education Loan
These loans are availed by the students for pursuing higher education, either in India or abroad. An education loan covers basic course fee and other allied expenses such as accommodation, exam fees and other charges among others.
The quantum of the loan sanctioned and interest rate vary across banks. The onus of loan repayment is on the student. This loan can be taken for either full-time or part-time course and graduation or post-graduation in the fields of management, engineering, medical, etc.
Prior applying for any of these loans, it’s essential to know its eligibility criteria, the applicable interest rate, tenure, associated charges and other terms and conditions.
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This content has been created in association with YONO SBI.