Types of Loans, Eligibility, Documents and Benefits
The expansion of the finance market and improvements in technology have made it easy and digital to get a loan. You don’t even have to go to the bank branch these days to get a loan. You can use the Internet to apply for all types of loans from the comfort of your office or home. After you send in your paperwork, the loan is approved and put into your account within a few days.
Read on to learn more about the different types of loans that are available for you to choose from.
Types of loans
There are many types of loans. Secured and unsecured are two categories of loans. Based on these categories, types of loans include home, auto, gold, and personal loans.
Home Loans
Home loans are well-known types of loans used to purchase a home. Home loans are secured loans, and the legal papers of the home are bought to serve as security or collateral. Most home loans are given for 20 or 25 years. A home loan can last no longer than 30 years. When you apply for a home loan, you can get a tax break on the interest you pay on the loan. Also, a home loan has the lowest interest rate of all bank loans. The interest rate on a home loan ranges from 7% to 14%.
Loans for Education
These types of loans cover the costs of going to college. If you already have the skills for a degree but don’t have the money to get it, adding it to your CV could help you get a good job.
Personal Loans
These types of loans can be used for multiple purposes. Personal loans can be used for many things, like weddings, home repairs, trips, medical emergencies, etc. Personal loans have higher interest rates than loans that are backed by a security. In India, weddings are big events, and many people take out loans to prepare for their weddings. The interest rate is between 10% and 20% p.a.
Auto Loans
These types of loans can be used to buy a car, a two-wheeler, or a commercial vehicle for personal use. Most of the time, these are for a maximum of five years. And they have a higher rate of interest than a home loan. The interest rate on a car loan starts at 7% p.a. and varies across lenders.
Consumer durables loans
Durable consumer loans are used to buy things like electrical appliances, air conditioners, and coolers that will last a long time. Most lenders offer these loans at 0% interest, which makes them easier to repay.
Gold Loans
It is a loan that is backed up by gold. Gold loans can be used for anything, like a medical emergency, a wedding, or the start of a business. Most gold loans have interest rates between 10% and 26%.
Working Capital Loan
It’s a loan that doesn’t require collateral and is used to meet everyday business needs. Most of the time, these are short-term loans that can take up to a year to pay back. Working capital loans typically come with a higher interest rate than term loans.
Loan for a set amount of time
A loan is given for a set amount of time and has a fixed EMI. This financing is necessary when investing in a long-term asset or expanding into a commercial space. The interest rate may be fixed or change over time, depending on what the lender and borrower agree to.
Eligibility for Common Types of Loans
How do you find out if you can get a loan? The requirements for qualification change depending on the types of loans you hope to obtain. You can use the criteria listed below to see if you are eligible:
- Credit score above 750.
- Age between 21 and 60,
- Assets to use as collateral include fixed deposits, insurance policies, real estate that can’t be moved, bonds, gold, and so on.
- Having a good relationship with your bank or lender.
- History of payments.
- Monthly salary of more than Rs. 15,000 to Rs. 25,000.
How Can I Get a Loan?
Today, getting a loan is easy and doesn’t take much time. All you have to do is follow the steps below: –
- Choose the lender you want to get the loan from based on what you’ve learned. Also, make sure you meet the requirements.
- To apply for the loan, you can go to the lender’s branch or website.
- Gather all the paperwork and proof you need to apply for the loan and send it in.
- The bank or lender will let you know the status of your loan application within a certain amount of time.
- Have a plan for how you’ll spend the money and how you’ll pay it back before you commit to a loan. Think through the benefits and drawbacks of each option you’re considering. Get quotes from different banks and lenders, and compare interest rates and loan terms.
- Before deciding, you should also consider the fees and penalties. You can talk to an expert or a friend to determine which loan is best for you. Banks have experts who can help you choose a loan that fits your needs.
- Loan payments should be made on time because missing payments will hurt your credit rating and make it harder for you to get loans in the future.
The only way to make a good choice is to do research and think things through. A loan can help you get started on your journey or make your dreams come true, but it can do the opposite if you don’t pay it back. So, choose wisely!
Advantages of a Loan
- A loan can be used for many different things. With the help of a loan, you can pay for anything, from a house to education.
- Interest rates are set based on the repo rate set by the RBI.
- Instead of putting up security, you can also use a guarantee from a third party.
- Most of the time, the loan is paid back in EMIs spread out over the length of the loan.
- You can choose the repayment time at your convenience.
- You can easily get various types of loans online these days.
Conclusion
To summarise, there are numerous bank loan options to suit a variety of situations. Even so, there’s no harm in taking out a loan if you need money for something unexpected. But before you take out a loan, you need to make sure you can pay it back on time. If you don’t, you could hurt your credit score. Check out the Piramal Finance blog section for more information regarding loans and other financial tools.