Different Types of Loans
Here's an introduction to the types of Loans available and the factors you should consider when applying for one.
Loan provide financial assistance by allowing individuals or entities to borrow a sum of money that must be repaid with interest over a specific period, helping to fulfill various personal or business needs.
What is a loan?
A loan is a credit that you have borrowed from the NBFC or bank with the promise of returning it within a specific period. The lender decides on a fixed rate of interest, which you have to pay along with the principle amount within a specific period. Here are different types of loans available.
Types of loans
Loans are classified into two factors based on the purpose that they are used for:
- Secured loans
- Unsecured loans
Secured Loans
Secured loans are the ones that require collateral where you have to pledge an asset as security while borrowing from the lenders. That way, if you cannot repay the loan, the lender still has some means to get back their money. The rate of interest on secured loans tends to be lower as compared to those for loans without collateral.
Types of secured loans
- Home loan
- Loans against insurance policies
- Gold loans
- Loans against mutual funds and shares
- Loans against fixed deposits
Unsecured Loans
These are loans that do not require collateral. The lender gives you the money based on past associations, your credit score and history. Thus you have to have a good credit history to avail of these loans. Unsecured loans usually come at a higher interest rate due to the lack of collateral.
Types of unsecured loans
- Personal loan
- Short-term business loans
Documents required for loan
- Valid identity proof
- Valid address proof
- Income proof
