18 Types of Loans That You Should Know – Forbes Advisor INDIA

In today’s fast-paced world, financial needs and goals are constantly evolving. Whether it’s a medical emergency, dream vacation, home renovation, or higher education, loans in India offer a lifeline to turn aspirations into reality. 

Loans act as accessible borrowing options that provide individuals with the necessary funds to meet their diverse financial requirements. From unsecured loans that require no collateral to secured loans backed by valuable assets, the lending landscape offers a wide range of options to suit every borrower’s needs. 

In this comprehensive guide, we explore the different types of loans available in India, helping you navigate through the intricacies of borrowing and find the ideal loan that aligns with your financial aspirations.

Types of Loans to Consider in India

1. Business Loans for Self-Employed Individuals

Self-employed individuals or entrepreneurs seeking funds to grow or expand their businesses can opt for business loans designed specifically for them. These loans may require the applicant to submit business-related documents, such as income tax returns, business bank statements, and other financial documents. 

Business loans can be used for various purposes, such as purchasing inventory, expanding operations, or meeting working capital needs. These loans can be either secured or unsecured, depending on the lender’s requirements and the applicant’s creditworthiness. For self-employed individuals, demonstrating a stable income and a promising business plan can increase the chances of loan approval and favorable terms. 

Business loans can give entrepreneurs the necessary financial boost to take their ventures to the next level and achieve their business goals.

2. Unsecured Personal Loans

Unsecured personal loans are one of the most popular types of loans available in India. These loans are offered without any collateral requirement, making them accessible to a wide range of borrowers. 

Whether you need funds for a medical emergency, home renovation, wedding expenses, or any other personal needs, an unsecured personal loan can provide the financial support you need. The loan approval is primarily based on your credit score, income, and repayment capacity. 

While these loans offer convenience and quick disbursal, they usually come with higher interest rates compared to secured loans due to the increased risk for the lender. However, with various lenders offering competitive interest rates and flexible repayment options, borrowers can find the best deal that suits their financial situation.

3. Secured Personal Loans

Secured personal loans are another popular borrowing option in India. These loans require collateral, such as property, fixed deposit, or gold, to secure the loan amount. Because of the collateral, secured personal loans often come with lower interest rates compared to unsecured loans. The loan amount is usually determined based on the value of the collateral provided. 

Secured personal loans are ideal for individuals who may not have a high credit score or steady income but possess valuable assets that can be used as security. However, borrowers should be cautious as defaulting on the loan can lead to the lender seizing the collateral to recover the outstanding amount. 

With proper planning and responsible financial management, secured personal loans can be an effective way to meet significant financial needs while enjoying relatively lower interest rates.

4. Personal Line of Credit

A personal line of credit is a unique type of loan available in India that provides borrowers with a pre-approved credit limit. Unlike a traditional loan, a line of credit allows borrowers to withdraw funds as needed, and they only pay interest on the amount utilized. 

It offers flexibility and convenience, making it suitable for individuals with fluctuating financial needs. Once the borrower repays the borrowed amount, the credit limit is restored, and they can use the funds again if necessary. Personal lines of credit often have variable interest rates and are available for both secured and unsecured options. 

This type of loan is particularly beneficial for managing unexpected expenses or bridging temporary financial gaps without having to apply for multiple loans.

5. Salary Advance Loans

Salary advance loans, also known as salary loans or payday loans, are short-term loans offered to salaried individuals. These loans allow employees to access a portion of their upcoming salary before the payday. 

They are designed to address urgent financial needs or emergencies that cannot wait until the next salary credit. Salary advance loans have a quick approval process, and the loan amount is usually a percentage of the individual’s net monthly income. However, they come with higher interest rates and should be used judiciously to avoid falling into a debt trap. 

Many employers offer salary advance facilities to their employees as part of their benefits package, while some financial institutions and online lenders also provide such loans with convenient application processes.

6. Wedding Loans

Wedding loans are specialized personal loans intended to fund wedding-related expenses. Indian weddings can be elaborate and costly affairs, and many families may seek financial assistance to cover the expenses associated with venue bookings, catering, decorations, clothing, and more. 

Wedding loans come with varying loan amounts and repayment terms, allowing borrowers to plan their wedding without compromising on their dream celebrations. These loans can be either secured or unsecured, depending on the lender’s requirements and the borrower’s creditworthiness. 

It’s crucial for borrowers to plan their wedding expenses carefully and consider their ability to repay the loan comfortably after the celebrations.

7. Medical Loans

Medical loans are designed to help individuals cover medical expenses during emergencies or planned treatments. In India, healthcare costs can sometimes be significant, and a medical loan can provide much-needed financial support to access quality medical care. 

These loans can be used for hospitalization costs, surgeries, diagnostic tests, medications, or any other medical expenses. Medical loans can be either secured or unsecured, depending on the lender’s policies and the borrower’s creditworthiness. 

Some lenders may offer specific medical loans with favorable interest rates and flexible repayment options. It’s essential for borrowers to carefully assess their medical needs and opt for a loan amount that they can comfortably repay without putting additional financial strain.

8. Education Loans

Education loans play a crucial role in supporting students’ aspirations for higher education. These loans are specifically tailored to cover tuition fees, accommodation expenses, books, and other educational costs for studying in India or abroad. 

Education loans can be availed for various levels of education, from undergraduate to postgraduate courses. They may come with repayment moratorium options, where the borrower starts repaying the loan after completing the course or securing a job. Interest rates on education loans can be subsidized for certain courses, and some banks may offer lower interest rates for loans up to a specified amount. 

Education loans can provide students and their families with financial assistance to pursue their academic goals and build a brighter future.

9. Travel Loans

Travel loans are designed for individuals who want to fulfill their travel dreams without straining their immediate finances. These loans can be used to cover travel expenses, such as flight tickets, accommodation, tour packages, visa fees, and other travel-related costs. 

Travel loans are typically unsecured and come with a fixed repayment period, allowing borrowers to plan their travel expenses and repay the loan gradually. Since travel loans are personal loans, the approval process is relatively straightforward, and the loan amount is disbursed quickly. 

It’s essential for borrowers to budget their travel expenses and choose a loan amount that aligns with their repayment capacity to avoid any financial burden after the trip.

10. Debt Consolidation Loans

Debt consolidation loans are a financial solution for individuals burdened with multiple loans or debts. These loans help consolidate all existing debts into a single loan, making it easier to manage repayments. 

By consolidating debts, borrowers can streamline their finances, benefit from a lower interest rate, and potentially reduce the monthly repayment amount. Debt consolidation loans can be either secured or unsecured, depending on the borrower’s financial situation and credit score. This type of loan is suitable for individuals seeking better financial management and a structured approach to clearing their debts. 

However, borrowers must exercise caution and avoid incurring further debts after consolidating existing ones to ensure they can repay the new loan comfortably.

11. Home Renovation Loans

Home renovation loans are intended to finance the renovation or improvement of an existing property. Whether it’s remodeling the kitchen, upgrading the bathroom, or adding extra space, home renovation loans provide the necessary funds to carry out the desired improvements. 

These loans can be either secured or unsecured, with secured options offering lower interest rates due to the property serving as collateral. Home renovation loans can be availed by homeowners and individuals who have a clear vision for enhancing their living space. 

Proper planning and budgeting are essential to ensure that the renovation project stays within the loan amount and the borrower’s financial capacity.

12. Consumer Durable Loans

Consumer durable loans cater to individuals who want to purchase high-value consumer durables, such as electronics, appliances, smartphones, laptops, or furniture. These loans offer flexible repayment options and quick approval processes, allowing borrowers to make their purchases without significant upfront costs. 

Consumer durable loans may be available with or without collateral, depending on the lender’s policies and the borrower’s creditworthiness. The loan amount and repayment tenure can be customized to match the product’s cost and the borrower’s repayment capacity. 

13. Small Personal Loans

Small personal loans are short-term loans designed to meet immediate financial needs and bridge temporary cash gaps. These loans offer relatively smaller loan amounts compared to traditional personal loans, making them suitable for urgent expenses like medical emergencies, utility bills, home repairs, or unexpected travel. 

Small personal loans are typically unsecured, meaning borrowers don’t need to provide collateral. The application process is usually quick and straightforward, and borrowers can receive the funds within a short period. Interest rates for small personal loans may be slightly higher compared to larger personal loans due to the shorter repayment tenure. 

However, they provide a convenient solution for individuals who need quick access to funds for essential expenses.

14. Used Car Loans

Used car loans, also known as pre-owned car loans or second-hand car loans, are specifically designed for individuals looking to purchase a used car. These loans help potential car buyers finance the purchase of a pre-owned vehicle without straining their savings. 

Used car loans offer competitive interest rates and flexible repayment options, allowing borrowers to choose a repayment plan that suits their financial situation. 

The loan amount is determined based on the car’s value, age, and condition. Borrowers need to provide certain documents, such as the car’s registration certificate, insurance details, and seller agreement, to avail of the loan. Used car loans make owning a reliable and affordable vehicle more accessible for individuals who prefer a budget-friendly option over buying a new car.

15. Gold Personal Loans

Gold personal loans, also known as gold-backed loans or gold loan against ornaments, are a type of secured loan where borrowers pledge their gold jewelry or ornaments as collateral to avail funds. In India, gold has been an integral part of traditional savings and investment culture, making gold loans a popular choice for individuals looking for quick and hassle-free access to funds. 

The loan amount sanctioned is usually a percentage of the gold’s market value, and borrowers receive the funds immediately after the gold’s purity and weight are assessed by the lender. 

Gold personal loans are ideal for individuals who need funds for short-term requirements, such as medical emergencies, education expenses, or wedding arrangements.

One of the key advantages of gold personal loans is the quick processing and minimal documentation involved. Since the loan is secured against gold, lenders are less concerned about the borrower’s credit score or income. Even individuals with lower credit scores can avail of a gold personal loan, provided they have gold ornaments to pledge as collateral. Additionally, gold loans often come with lower interest rates compared to unsecured loans, making them a cost-effective borrowing option.

Repaying a gold personal loan is equally convenient, as borrowers can choose from various repayment options, including flexible equated monthly installments (EMIs) or bullet repayments, depending on the lender’s policies. Once the loan is fully repaid, the pledged gold is returned to the borrower.

16. Line of Credit 

In India, a line of credit is a flexible financial tool that provides borrowers with access to a predefined credit limit that they can use as needed. It functions as a revolving credit facility, allowing individuals or businesses to borrow and repay funds within the specified credit limit without the need for repeated loan applications. 

Line of credit options are offered by banks, financial institutions, and even some fintech companies, catering to both personal and business needs. Borrowers can utilize the line of credit for various purposes, such as covering short-term expenses, managing cash flow fluctuations, funding business operations, or handling unexpected financial challenges. 

The interest is charged only on the amount borrowed and for the duration it remains outstanding, offering cost-effectiveness and greater control over finances. With easy access to funds and the ability to repay and reuse the credit, the line of credit serves as a versatile financial lifeline for many individuals and businesses in India.

17. Line of Credit on Credit Cards

Credit cards with a line of credit, also known as credit lines or credit card limits, offer cardholders greater flexibility and purchasing power. Unlike traditional credit cards with fixed credit limits, credit cards with a line of credit allow users to spend up to a predefined credit limit, which may vary based on their creditworthiness and financial standing. 

The line of credit serves as a revolving credit facility, meaning as the cardholder pays off their outstanding balance, the available credit limit is restored, allowing them to make additional purchases without the need to reapply for a new credit card. This revolving credit feature empowers individuals to manage their expenses more efficiently, affording them the convenience of making purchases, accessing cash advances, and paying bills while enjoying the convenience and security of a credit card. 

Additionally, these credit cards often come with rewards programs, cashback offers, and other benefits, making them an attractive choice for responsible spenders looking to maximize their financial advantages. However, it is essential for cardholders to exercise prudent financial management and make timely repayments to avoid accumulating high-interest debts and maintain a healthy credit score.

18. Quick Loan Giving Apps

In recent years, India has witnessed a surge in the popularity of quick loan-giving apps, offering a seamless and convenient way for individuals to access instant funds. These apps have gained prominence due to their user-friendly interfaces, quick approval processes, and minimal documentation requirements. 

Leveraging digital technologies and artificial intelligence, these apps can assess the creditworthiness of borrowers rapidly and disburse funds within minutes, often directly to the user’s bank account. From personal loans to small business loans and even salary advances, these apps cater to a wide range of financial needs. 

However, with the convenience of quick loans also comes the responsibility to exercise responsible borrowing and ensure timely repayments. As the popularity of these apps continues to grow, the regulatory authorities are also taking measures to ensure fair lending practices and consumer protection, making it essential for users to choose reputable and licensed platforms for their borrowing needs.

Bottom Line 

With a wide variety of loan options available in India, individuals can find suitable financial solutions to meet their diverse needs. It’s essential to carefully assess the terms and conditions of each loan, compare interest rates and repayment terms offered by different lenders, and choose the most suitable loan that aligns with their financial goals and capabilities. 

Borrowers should also maintain a healthy credit score and exercise responsible financial management to ensure timely repayment and avoid any negative impact on their credit history.