A loan is a monetary aid provided by bankers or conventional financial firms to people who need money to answer distinctive needs that they cannot shoulder and expect the borrowers to pay back within the designated period, technically with interest. Over the years, bankers and financiers have been approving lakhs of loans in India each year.
With the integration of technology online fintech platforms, and credit unions have joined bankers and financiers to provide loans in India.
Let it be a bank or a fintech platform or credit union they provide a loan to borrowers only after acquiring the assurance on a repayment agreement. Even public and private sectors can apply for loans along with individuals.
Hold on! Now, you must be thinking “what is an interest?”. Interest is something that borrowers should pay as the fee for owing the loan. The interest amount would be a share of the loan borrowed. Generally, while approving the loan application lenders will fix the interest after scrutinizing several factors like cibil score, monthly income, previous credit history, and significantly, the tenure requested by the borrower to repay the loan.
Figure different types of loans in India
There are different types of loans available in India. The loan categorization stands on the features of the loans– (i) Open-end loans (ii) Closed-end loans (iii) Secured loans and (iv) Unsecured loans.
- In the open-end loan category, borrowers have the freedom to avail loan over and over despite having an outstanding with the earlier loan. Well, credit cards, shopping loans, home loans, travel loans, etc. would come under this segment. Borrowers are allotted with a specific amount of credit limit to employ, and they can use the money to fulfill their financial needs until the credit limit lasts. In this loan category, borrowers have to pay the loan according to their expenses of the respective month.
- The name “closed-end” itself portrays that, “the borrowers cannot acquire a loan unless they reimburse the earlier loan. Usually, borrowers will repay it monthly. The lenders require the borrowers to present documents or any guarantee to prove their credibility to repay the loan.
- In the secured loan category, the borrower should mortgage any of his/her assets registered on their name as collateral. Most people prefer secured loans when they apply for high budget loans. Not only assets but one can also pawn jewelry, a car, a house, or any private property to apply for a secured loan. The lender will take the rights on the mortgaged property until the borrower pays back the loan without any dues.
- The major benefit that comes along with secured loans is the interest rate on the secured loan is less, and the payback time will be more compared to any other.
- The unsecured loan category comprises loans like a student loan, credit card, salary advance loan, etc. Borrowers do not have to present any guarantee to apply for unsecured loans. Thus, the lender charges high-interest rates on loans taken out in this category. Generally, lenders estimate and assess the borrower on certain factors like persona which is nothing but employment track record & cibil score, credibility to pay back the loan amount, financial holdings, loan regulations, and any collaterals.
Also, visit the link to know how you can get a loan even if you have a low cibil score