Types of Loans in India

Laxmi Khuman


There are numerous types of loans available in India.

Despite having a variety of assets that they can mortgage in order to obtain loans at a lower interest rate, most people prefer personal loans over other types. One of the reasons for this situation is a lack of knowledge about the various types of loans available in India.

A loan, by definition, is a set amount of money that you can borrow from a lender (usually a bank) with the promise of repaying it within an agreed-upon time frame. On various types of loans, the lender charges a set rate of interest. The borrower repays the borrowed amount plus interest in installments according to the terms of the agreement between the two parties.

What Is The Process For Applying For A Loan?

Contrary to popular belief, applying for a loan is not a difficult process. You should take special care to ensure that you provide the banks with all of the necessary documents. Different types of loans in India necessitate a different set of documents.

Loan Application Process

  • Loan Application Form:

You must complete an application form for the type of loan you require from the bank. You must ensure that all of the information on the form is genuine and correct.

  • CIBIL Score Check:

The bank then checks your CIBIL to determine your credit card score. Apart from the current loan you are attempting to apply for, CIBIL tracks and maintains records of the money/loans you need to repay. If you have a good credit score, your loan application will be approved quickly.

  • Submitting the Required Documents:

To supplement their loan application form, the borrower must provide a number of documents. Along with the application form, documents such as proof of identity, proof of income, and other certificates must be submitted.

  • Loan Approval:

After you submit the application form and all required documents, the bank verifies all of the information you have provided. The bank approves your loan application once the verification is completed and the results are satisfactory.

Loans in India Come in a Variety of Forms

Let's take a look at some of the most common types of loans in India:

Personal Loan:

Personal loans are used to meet the borrower's individual needs. You can put the money from this type of loan to whatever purpose you want. You can pay off your previous debts, treat yourself to some high-end accessories, and plan a fantastic family vacation. It's entirely up to you how you spend the funds. When compared to other types of loans, the interest rates on this type of loan are higher.

Home Loan:

Everyone wishes to have their own home. However, purchasing a home necessitates a large sum of money, which is not always available all at once. Home loans are now available from banks to help you buy a home. There are several types of home loans:

  • A loan for the construction of a home.
  • A loan to repair and remodel your current home.
  • A loan to help you buy a house.

Educational Loan

Banks also provide education loans to those who require them. Students who are financially disadvantaged benefit from these loans because they provide better support in terms of study opportunities. Students who want to pursue higher education can get a loan from any Indian bank. They must repay the money from their payment once they have found work.

Gold Loan:

Of all the types of loans available in India, the gold loan is the quickest and easiest to obtain. When gold prices were rising at an exponential rate, this type of loan was very popular. The recent decline in gold prices has resulted in losses for gold companies.

Vehicle Loans:

Vehicle loans enable you to realize your dream of owning a car or motorcycle. Almost every bank offers this type of loan. Because it is a secured loan, the bank has the right to repossess the vehicle if the borrower does not pay the installments on time.

Agricultural Loan:

Banks offer a variety of loan programmes to help farmers meet their needs. These loans have very low interest rates and help farmers buy seeds, farming equipment, tractors, insecticides, and other things they need to increase their yield. The loan can be repaid once the crops have been harvested and sold.


An overdraft is a method of borrowing money from a bank. It means that customers can withdraw more money from their accounts than they have deposited.

Loans Against Insurance Policies:

You can get a loan against your insurance policy if you have one. These loans are only available to insurance policies that have been in force for at least three years. Your insurer may be able to provide you with a loan based on your insurance policy. It is not necessary to go to the bank for the same. To the bank, you must submit all documents related to the insurance policy.

Cash Credit:

A bank procedure for paying a customer in advance is known as cash credit. This procedure allows the customer to obtain a loan from the bank for a specific amount. In exchange for cash credit, the customer gives the bank a few securities. This process can be renewed once a year by the customer.

Loans Against Bank FDs:

If you have a bank fixed deposit, you can take out a loan against it. You can apply for a loan of INR 80,000 if your FD is worth around or more than INR 100,000. The interest rate on such a loan is higher than the interest rate paid by the bank on your FD.

Loans Against Mutual Funds Or Shares:

When applying for a loan, most people use their mutual fund investment or shares as collateral. Banks provide loans that are less than the total value of the shares or mutual fund investment. Because the bank can charge interest if the borrower is unable to repay the loan, the amount is lower.