Loans have become an irreplaceable part of financial planning in India, helping individuals and businesses achieve their goals. It could be the dream of buying a house, funding your education, starting a business, or even handling an emergency. There are different types of loans available in India, for almost every purpose. But with so many options, it’s easy to get lost in thought and even possibly choose the wrong option without the right considerations in place.
So, which loan is right for you? Should you go for a secured loan backed by collateral, or is an unsecured loan a better fit? Let’s break it down and understand the types of loans in India to help you make an informed decision.
Table of Contents
What is a Loan?
A loan is a financial arrangement where a lender (bank, NBFC, or financial institution) provides money to a borrower with the agreement that it will be repaid over time, usually with interest. Loans can be classified based on collateral, purpose, tenure, and repayment terms.
What are the Different Types of Loans?
Loans in India are broadly categorized into:
- Secured Loans – Backed by collateral (property, gold, shares, etc.)
Secured loans require you to pledge an asset—such as property, gold, fixed deposits, or shares, as security against the borrowed amount. Because these loans minimize risk for lenders, they typically offer lower interest rates, higher loan amounts, and longer repayment tenures.
- Unsecured Loans – No collateral required but rely on creditworthiness
Now, let's explore each category in detail.
What are the types of Secured Loans?
Collateral is not needed for unsecured loans, in contrast to secured loans.When determining eligibility, lenders look at parameters like repayment history, income stability, and credit score. These loans frequently have higher interest rates, shorter tenures, and more stringent approval requirements because they represent a greater risk to lenders.
1. Home Loan
A home loan is the most common type of secured loan, helping individuals buy or construct a house.
- Interest Rate: 7-10% per annum
- Repayment Tenure: Up to 30 years
- Types: Regular home loans, home construction loans, home improvement loans
Best for: Buying, constructing, or renovating a house
2. Loan Against Property (LAP)
A loan against property allows you to use your residential or commercial property as collateral to secure a loan.
- Loan Amount: 50-70% of property value
- Interest Rate: 8-12% per annum
- Repayment Tenure: Up to 20 years
Best for: Business expansion, debt consolidation, or high-value personal expenses
3. Loans Against Insurance Policies
If you have a life insurance policy, you can take a loan against it instead of surrendering the policy.
- Loan Amount: 80-90% of surrender value
- Interest Rate: 9-12% per annum
Best for: Short-term financial needs without liquidating assets
4. Gold Loans
Gold loans are secured against your gold ornaments and provide quick access to cash.
- Loan Amount: Up to 75% of gold value
- Interest Rate: 7-15% per annum
- Repayment: Flexible, including bullet repayment and EMIs
Best for: Urgent financial needs, especially for farmers and small businesses
5. Loans Against Mutual Funds and Shares
Financial institutions allow you to borrow against your mutual fund investments or shares.
- Loan Amount: 50-80% of the asset value
- Interest Rate: 10-15% per annum
Best for: Investors looking for liquidity without selling assets
6. Loans Against Fixed Deposits (FDs)
Instead of breaking your FD, you can get a loan against it at lower interest rates.
- Loan Amount: 75-90% of FD value
- Interest Rate: 1-2% higher than FD rate
Best for: Avoiding FD premature withdrawal penalties
7. Vehicle Loans
These loans help you purchase a car, bike, or commercial vehicle.
- Loan Amount: 80-100% of vehicle cost
- Interest Rate: 7-15% per annum
- Repayment Tenure: 1-7 years
Best for: Purchasing personal or commercial vehicles
8. Loan Against Securities
You can avail a loan by pledging stocks, bonds, or government securities.
- Loan Amount: 50-75% of securities’ value
- Interest Rate: 9-12% per annum
Best for: Investors needing short-term funds without selling securities
What are the Types of Unsecured Loans?
Unsecured loans do not require collateral but are granted based on creditworthiness and income stability. These loans typically have higher interest rates since they pose a greater risk to lenders.
1. Personal Loan
Instant personal loans are multi-purpose products used for medical emergencies, travel, weddings, or debt consolidation.
- Loan Amount: ₹10,000 to ₹50 lakhs
- Interest Rate: 8-24% per annum
- Repayment Tenure: 1 month - 5 years
Best for: Emergency expenses, weddings, and travel
2. Short-term Business Loans
Designed for small businesses to meet working capital needs or expand operations.
- Loan Amount: ₹50,000 to ₹5 crores
- Interest Rate: 12-20% per annum
Best for: Small and medium enterprises (SMEs)
3. Education Loans
Loans for education are designed for students pursuing higher education in India or abroad.
- Loan Amount: ₹1 lakh to ₹1.5 crores
- Interest Rate: 6-15% per annum
- Repayment: Starts after the moratorium period (course duration + 12 months)
Best for: Financing education expenses without burdening parents
4. Credit Cards
Credit cards are a form of revolving credit, allowing users to borrow money up to a pre-approved limit.
- Interest Rate: 24-48% per annum (if not paid within the billing cycle)
- Benefits: Reward points, cashback, EMI options
Best for: Everyday purchases and short-term credit needs
Which Are the Best Loan Options?
Finding a financial solution that meets your needs and repayment capacity is more important than simply taking a loan. Here is a guide to help you choose wisely among the various loan options available in India:
- For buying a home → A home loan is the go-to option for purchasing property. It offers high loan amounts, lower interest rates, and long repayment tenures (often up to 30 years). You can also enjoy tax benefits under Section 80C and Section 24(b) of the Income Tax Act.
- For emergency expenses → Emergency loans or gold loans provide quick access to funds with minimal paperwork. Gold loans are secured, meaning you pledge your gold as collateral and receive funds almost instantly. On the other hand, emergency personal loans are unsecured and can be availed quickly, though they come with higher interest rates.
- For business expansion → If you need funds to scale up your business, a loan against property (LAP) or a business loan can provide the necessary capital. LAP allows you to pledge your residential or commercial property as collateral, offering lower interest rates compared to unsecured business loans. Business loans, on the other hand, are great for short-term financial needs, helping with working capital, equipment purchases, or expansion plans.
- For short-term financial needs → For temporary financial needs, you can opt for a loan against fixed deposits (FDs), mutual funds, or credit cards. A loan against FD lets you borrow against your deposit without breaking it, ensuring you continue earning interest. Similarly, loans against mutual funds and shares provide liquidity without selling your investments. If you need an instant credit line, credit cards can be helpful, but be mindful of high interest rates.
If interest rates are your concern, secured loans like home loans and gold loans are the cheapest. If you don’t have collateral, personal loans and credit cards are alternatives—but at higher costs.
Summary
With so many different types of loans in India, choosing the right one can feel stressful. Be it a home loan, personal loan, or a loan against securities, you need to compare interest rates, repayment terms, and eligibility criteria before making a decision.
Looking for the best option? Explore the types of loans available in India and at Creditt+ and pick one that suits your needs and repayment ability!
