What are the most common loan types in India?
What's the story
Navigating the world of loans can be tricky, especially in a diverse economy like India. With a plethora of options available, knowing the most common loan types can help you make informed financial decisions. Here are five popular loan types in India, each serving different needs and purposes. From personal loans to home loans, knowing these can help you pick the right financial product for your requirements.
#1
Personal loans: Quick financial relief
Personal loans are unsecured loans that provide quick financial relief without the need for collateral. They are usually used for medical emergencies, travel, or other unforeseen expenses. The loan amount can range from ₹50,000 to ₹20 lakh, depending on the borrower's credit score and income. The repayment period usually ranges from one to five years, with interest rates varying between 10% and 24%.
#2
Home loans: Investing in property
Home loans are meant for buying or constructing residential properties. They usually cover up to 90% of the property's value and have long repayment tenures of up to 30 years. The interest rates are usually between 7% and 9%, depending on the lender and the borrower's creditworthiness. Home loans also come with tax benefits under Section 80C of the Income Tax Act.
#3
Education loans: Funding academic pursuits
Education loans help students fund their higher education in India or abroad. These loans cover tuition fees, accommodation costs, and other related expenses. The amount sanctioned can be anywhere between ₹20,000 and ₹1 crore, depending on the course and institution. Repayment periods range from five to seven years, with interest rates ranging from 9% to 12%.
#4
Auto loans: Financing vehicle purchases
Auto loans are specifically designed for purchasing vehicles like cars or bikes. They usually cover up to 100% of the vehicle's on-road price, including registration and insurance costs. The repayment period is usually three to seven years, with interest rates ranging between 8% and 12%. Borrowers must provide proof of income, and they may require a co-applicant if they have a low credit score.
#5
Gold loans: Leveraging precious assets
Gold loans allow borrowers to pledge their gold ornaments as collateral to quickly avail funds without credit checks or lengthy documentation processes. The loan amount depends on the weight and purity of gold pledged, typically ranging from ₹10,000 to ₹1 crore. Repayment periods range from six months to three years, with interest rates between 7% and 24% per annum.