11 Types of Loans in India You Should Know
Loan With Additional Security
This type of loan is linked to guarantees, as borrowers resort to this type by providing a certain guarantee to repay the loan, meaning that they may lose this guarantee, which is cars, houses, boats, or others in favor of the lenders in the event of non-payment; Therefore, lenders offer lower interest rates on the loans they give due to the presence of collateral, and this type of loan is better than others in the event of commitment to pay.
Loan Without Collateral
This type of loan is not associated with anything, and if the borrower defaults, he does not compensate the lender, which exposes him to higher risks as a result of the lack of guarantees; Therefore, in this type of loan a higher interest rate is charged, credit cards and personal loans are examples of unsecured loans.
The guarantor loan is represented by the presence of a person who guarantees the repayment of the loan if the borrower is unable to pay, usually a friend, relative, or any person who meets the criteria required by the loan donor in order to increase the chance of obtaining the loan. The mechanism for repaying loans is usually in monthly installments, and the existence of The guarantor in this equation guarantees the lender his right if the borrower is unable to pay what he owes, and if both of them are unable to pay, this would expose them to risk.
Closed and Open End Loan
We can differentiate between closed and open end loans as follows:
- Open ended loans: This type of loan gives the freedom to borrow again and again at any time with the presence of credit cards, and each card has a specific limit for the withdrawal process, and every time a person pays for something or withdraws a certain part of the money, the financial value in the credit card decreases .
- Closed end loans: This type of loan allows borrowing only once until the borrowed part is repaid, and in the event of the need to borrow again in this way, the borrowing procedures must be from scratch by submitting documents that prove its worthiness with the closed-end loan and waiting for approval, such as: Mortgage loans, car loans, and student loans.
Personal loans can be resorted to to obtain some personal belongings, but this type of loan is expensive, as it is considered an unsecured loan, and borrowers need some papers, including proof of income, and assets that are not less than the amount to be borrowed, then waiting for approval or rejection in Within days of application, a personal loan typically provides about a few hundred to a few thousand dollars in repayment periods of 2-5 years.
The advantages of personal loans are as follows:
- the possibility of using it for any reason and without any guarantees;
- Because it is a personal loan. the possibility of using it to cover practical expenses; Such as buying a device, a boat, or other collectibles.
- The need to verify the financial ability, despite the tendency of banks to provide personal loans; However, it is leaning in its new direction on traditional lenders.
Debt Consolidation Loans
Debt consolidation loan is a form of loan taken to pay off debts and credit card loans by lowering the interest rate on debts and monthly payments to high-consuming individuals This helps to track one due date instead of several by merging all credit cards into one card and it also saves money, and thus the individual can pay off debts monthly through installments in reasonable payments.
Car loans are as follows:
- Lease-to-own: It is lease-to-own through the system of installments in installments; This means that you do not own the car until the car payments are fully paid.
- Personal Contract: This case requires a deposit amount followed by several lump sums to own the car, and the person can never own the car during the transaction, nor modify it or sell it until after paying the full agreed amount.
- Rent: It is the payment of a fixed monthly amount in return for renting an agreed-upon car, including maintenance costs, and the rental ends with returning the car to its owner.
Small Business Loan
The small business loan is used to spend on general commercial projects with some limitations, such as: the determinants of the commercial real estate loan through mortgage, and the amounts of these loans range from a few thousand to more than a million dollars, and there are reasons for using small business loans are as follows:
- Covering short-term financing gaps
- Pay your daily expenses
- Buying property
- Expand the owners’ self-inventory, and expand their business
- Buying office space
Real Estate Loan
The real estate loan is considered a secured loan, where the individual needs collateral to obtain it like a house, and the value of the loan depends on the individual’s share of the house subject to the guarantee, or the difference between the market value of the house and the amount of what is borrowed from the bank, and no more than 85% can be borrowed of the individual’s share of the house, and it is worth noting that the bank’s interest rate in this loan is lower with the unsecured personal loan, and this type of loan can be used for many purposes; Like home improvements or medical bills.
Fixed Rate Loan
The fixed interest rate loan is characterized by the stability of the monthly payments and the value of the interest throughout the life of the loan, even if these loans are long-term, which facilitates the matter when dividing the monthly budget of individuals without the need to change the amount to be paid and without worrying about the increase in the interest rate and others.
Variable Interest Rate Loan
The variable interest rate loan is related to the fluctuating interest rate , as banks set it on variable rate loans, as the interest rate can rise or fall in subsequent months, and the variable interest rate is logical if the loan value is repaid within a short period of time, and the variable interest rate loan is characterized by a price Annual interest is lower than a fixed rate loan.
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