What is Loan?

Loan is when the borrower borrows the money from the lender for a certain rate of interest with a commitment to pay the amount back in future. It is a request of money from one source to another for a fixed time duration. The primary facilities of financial institutions like banks, NBFC (Non-Banking Financial Companies) is to avail loans to the customers.

Loan = Borrowing money from bank/NBFC with interest and repayment plan.

Types of Loans:

1. Secured Loan
2. Unsecured Loan

1.Secured Loan

Bank takes security (collateral)

• In this, the borrower pledges some asset as collateral like property, car, etc. A mortgage loan is one of the secured loans requested by any customer.
• In a secured loan, money is generally used to purchase a property.
• If the borrower is not able to pay back the loan amount, the lender possesses the legal right to sell off the collateral security in order to recover the money.

Examples:

• Home loan (house is security)
• Vehicle loan (car/bike is security) etc…

Types of Secured Loan

i. Home Loan

A loan taken to buy, build, or renovate a house. The property is kept as collateral with  the bank. It usually has a long repayment period (10–30 years).

ii. Loan Against Property (LAP)

A loan where you mortgage your house or land. You can use the money for business, education, or personal needs. Interest rates are lower than personal loans.

iii. Gold Loan

A loan provided against gold jewellery or ornaments. It is processed quickly with minimal documentation. The gold is returned after full repayment.

iv. Car Loan

A loan taken to purchase a new or used car. The vehicle acts as security until the loan is repaid. It is usually repaid in monthly EMIs.

v. Loan Against Securities

A loan against financial assets like shares or mutual funds. You don’t need to sell your investments to get money. Interest is charged only on the amount used.

vi. Vehicle Loan

A vehicle loan is taken to purchase a car, bike, or commercial vehicle. The vehicle itself acts as collateral until the loan is fully repaid. It is usually paid back in monthly EMIs over a fixed period.

2.Unsecured Loan

No security required

• An unsecured loan is not backed by any collateral or property of the borrower.
• Borrowerdoes not give house, land, gold, vehicle, or any asset as security.
• These loans are provided bybanks, NBFCs, and private lenders.
• Interest rate depends on the lender and borrower’s creditworthiness (income, job, CIBIL score).
• The interest rate is always higher than secured loans because there is no security

Examples:

• Personal loan
• Credit card loanetc..

Types of Unsecured Loan

i.Personal Loan

A loan taken without providing any collateral. It can be used for medical, travel, or emergencies. Interest rates are higher due to higher risk.

ii. Credit Card Loan

A loan taken using your credit card limit. You can convert purchases into EMI payments. Interest rates are usually high if not paid on time.

iii. Consumer Durable Loan

A loan for buying electronics like TV, fridge, or washing machine. Often available as no-cost EMI schemes. Requires minimal documentation.

iv. Payday Loan

A short-term loan taken before receiving your salary. Usually small amounts with quick approval. Must be repaid on the next payday with fees.

v. Education Loan

A loan to finance higher education in India or abroad. Covers fees, books, and living expenses. Repayment starts after course completion.

vi. Travel Loan

A loan to fund domestic or international trips. Covers tickets, hotels, and other expenses. Repaid in installments after travel.

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