A Beginner’s Guide to Every Type of Loans in India

Understanding the type of loans available in India is crucial for anyone looking to borrow money for personal or professional needs. Whether you’re buying a house, funding education, or handling unexpected expenses, knowing the right type of loan helps you make informed decisions and manage your finances smartly.

What is a Loan?

A loan is a sum of money borrowed from a financial institution or private lender that must be repaid over time, usually with interest. Loans can help fund major life events like home purchases, medical emergencies, or business expansion.

The Loan Life Cycle

A loan typically goes through the following stages:

1. Application: You apply with relevant documents.
2. Approval: Lenders check your credit score and history.
3. Disbursement: Money is transferred to your account.
4. Repayment: You repay in monthly EMIs.
5. Closure: Once fully paid, the loan is marked closed.

Type of Loans in India

Understanding different types of loans will help you choose the right one based on your needs.

1. Secured Loan: These require collateral, such as a house, car, or savings account. If you fail to repay, the lender can seize the collateral. Examples include Home Loans and Car Loans.
2. Unsecured Loans: These do not require collateral but come with higher loan interest rates due to increased lender risk. Examples include Personal Loans and credit card loans.
3. Personal Loans: A personal loan is a versatile, unsecured loan that can be used for various purposes, including medical expenses, wedding costs, or travel. Repayment terms vary, and loan interest rates depend on credit score.
4. Home Loans: A home loan is used to purchase a house. It is a long-term, secured loan where the property serves as collateral. Home Loans often have lower interest rates compared to personal loans.
5. Car Loans: These help individuals purchase a vehicle. They are secured loans where the car acts as collateral. Loan interest rates depend on factors such as credit score, down payment, and loan tenure.
6. Education Loans: These assist in funding education expenses. They typically offer lower loan interest rates and flexible repayment terms. Government-backed education loans may offer additional benefits like deferred repayment until after graduation.
7. Business Loans: These provide capital to start or expand a business. Business Loans can be secured or unsecured and vary in terms based on the business’s creditworthiness and financial history.
8. Instant Loans: These are short-term, fast-approved loans designed for quick financial assistance. Best loan apps for quick approval in India, such as GoodScore, MoneyView, and Kissht, can help in securing such loans.

Key Loan Terminologies to Know

Before applying for a loan, it’s essential to understand the key terms involved:

• Principal - The original loan amount borrowed.
• Loan Interest Rate - The percentage charged by the lender on the borrowed amount.
• Loan Tenure - The duration for which the loan is taken.
• Loan EMI - A fixed monthly repayment amount.
• Credit Score - A numerical representation of your creditworthiness.
• Collateral - An asset pledged to secure a loan.
• Processing Fee - A fee charged by lenders to process the loan application.

How to Apply for Any Type of Loan?

Step-by-Step Process

1. Assess Your Financial Needs: Determine the purpose of the loan, the amount required, and your repayment capacity.
2. Check Your Credit Score: A 750+ credit score increases the chances of loan approval and helps secure lower loan interest rates. If your score is low, consider improving it by paying off existing debts and maintaining timely bill payments.
3. Compare Lenders and Loan Options: Research and compare different lenders to find the best loan offers.
4. Use a Loan Eligibility Calculator Online: This helps estimate how much loan amount you qualify for based on your income and financial profile.
5. Submit the Application: Apply online or offline with the required documents. Lenders will evaluate your credit report before approving the loan.
6. Loan Disbursement and Repayment: Once approved, the loan amount is disbursed. Ensure timely repayments to maintain a good credit score.

Factors to Consider Before Taking a Loan

• Best Personal Loan with Low Interest in India: Choose a lender offering the lowest rates.
• How to Get a Home Loan with a Low Credit Score: Improve your credit score or apply with a co-applicant.
• Best Banks for Loans in India: Compare interest rates, tenure, and customer service.
• Hidden Charges: Look out for processing fees, prepayment penalties, and late payment charges.
• Repayment Plan: Ensure you have a stable income to meet loan EMI obligations.

Conclusion

Understanding the type of loans and their features is the first step in making smarter financial decisions. Whether you choose a secured or unsecured loan, always compare your options, use eligibility tools, and keep an eye on your credit score.

Want to check if you are eligible for loan offers? Sign up for GoodScore’s credit consultation to get started on your loan journey today!

FAQs

1. What is the best personal loan with low interest in India?

A: The best personal loan depends on your credit score and income. Look for offers from top banks or trusted loan apps like GoodScore that offer competitive rates and fast approval.

2. How to get a home loan with a low credit score?

A: Improve your score first or apply with a co-applicant. Some lenders consider steady income and offer secured home loans even with moderate scores.

3. What are the main types of loans available?

A: Loans are primarily categorised as secured and unsecured loans. Popular ones include home loans, personal loans, education loans, car loans, and business loans.

4. Which type of loan has the lowest interest rate?

A: Home loans generally have the lowest interest rates due to their secured nature and long repayment tenure.

5. What are the best loan apps for quick approval in India?

A: Top-rated apps include GoodScore, MoneyTap, Kissht, and EarlySalary, known for quick processing, minimal documentation, and flexible repayment terms.