Types of Banking loans

• Posted by Nandini Devi March 3, 2015 - Filed in Business - ##Loans  ##Bank loans  - 3,226 views

  Types of loans

  Currently in India we have different types of loans available ranging from the personal loans to marriage loans. But when to use which loan is the smart way of managing your money. Therefore first let us look at different type of loans available.

   

  1) Home Loan: Home loan as the name indicates is loan against the buying property. Every individual or people currently have dreams to have their own home. To make reasonable best option is the home loan. Again there are sub-categories of home loans which are as mentioned below.

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

  You can also find the different variant of home loans other than above. But here listed basic type of home loans.

   

  2) Personal Loan : It is loan granted to execute your expenses which ranges from buying some expensive electronic gadgets to booking your air tickets. Yes, people used to use this facility for anything they can. They forget that usually rate of interest on such loans would 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 can find 2 types of loans
  Secured Loans: Where you provide some deposit as a safety against loans.
  Unsecured Loans: In such type of loans borrower deposit not required.

   

  3) Car Loan or Vehicle Loan: This is usually used to meet your financial necessity when one is planning to have his dream car or bike. It is usually a secured type of loan where guarantee 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 handy tool for parents who not planned well for their kid’s higher education. This scheme is basically meant for the estimable and poor student to give them financial help in perusing their higher education. But these days even middle and upper middle class parents suffer financial difficulties for providing education to their kids

  Eligibility criteria-

  1) Student should be Indian National.

  2) Should have secured admission for the higher education course in recognized institutions in India or abroad through an entrance test. But if admission is not only based on entrance test marks then banks are advised to adopt criteria of employability and reputation of the institution concerned.

  3) Banks will consider meritorious student for this scheme even if student get admission under the management quota.

   

  5) Gold Loan: This was one of easiest and fastest way of loan when gold rate was at it is peak. But currently lot of lenders can 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. Even though 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 three years of policy period. You can get loan easily on your policy from insurer. But other method to take loan is to assurance your policy document with banks and takes loan on that. LIC can offer you loan on your policy with the interest rate of 10 percent, which thought to be competitive pricing compare to other type of loans.

   

  7) Loan against Bank FDs: This is one of the form of loan where your deposit is your bank FD itself. Suppose you have the bank FD of around Rs.10,00,000 then you are usually eligible to get loan upto Rs.8,00,000. But interest rate can 1 to 2 percent 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 gain loan from PPF when one satisfies certain conditions. For detailed view on same visit my old post “PPF-Loan and Withdrawal“. You may 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, and renewal of home or pre-retirement. But all are not eligible to take loans. There 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 the investment value of shares or mutual funds. But you would not get more value from this. Reason is, both the investments - if mutual fund is of equity oriented then variation in values will be high. Hence to protect their loan amount usually lenders offer the less loan.

   

  10) Loan from unrecognized sector: This is one of an easiest but costliest way of fulfilling your financial dream. Usually interest rate will be in the range of 20% to 30% but you can get it immediately. Such types 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.

   

  11) Term loan : A term loan is simply a loan provided for business purposes that needs to be paid back within a specified time frame. It typically carries a fixed interest rate, monthly or quarterly repayment schedule - and includes a set maturity date. Term loans can be both secure (i.e. some collateral is provided) and unsecured. A secured term loan will usually have a lower interest rate than an unsecured one.

  Depending upon the repayment period this loan type is classified as under:

  a. Short term loan: Repayment period less than 1 year.
  b. Medium term loan: Repayment period between 1 to 3 years.
  c. Long term loan: Repayment period above 3 years.

   

  12) Commercial Vehicle Loans

  Commercial Vehicle Loans enables a borrower to purchase vehicles like trucks, buses, tippers, light commercial vehicles. The tenure of such loans vary from 12 to 60 months depending upon the deal and nature of repayment capacity.

  This loan facility is provided to companies with more than two years of business experience, existing owners of atleast two commercial vehicles, captive customers and transporters.

  Is there 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.