21st century consumers in India have seen Banks and Non-Banking Finance Companies (NBFCs) in India offer a wide range of loans.
Never before has access to loans been as easy.
Several recent developments in banking infrastructure (coming of age of the credit bureaus and increasing ease of cheque settlements across locations) are aiding the ease of availability of loans.
If we classify loans based on the purpose for which money is being raised, there are at least the following:
Housing Loans (also known as Home Loans) to fund the purchase and/or construction and/or repairs and renovation of a house along with the land surrounding it or even the purchase of a flat in a residential apartment.
Commercial Property Loans to fund the purchase of immovable property for commercial purposes.
Car Loans (also known as Auto Loans) to fund the purchase of a new or a used car. Education Loans to fund further studies.
Multi-purpose Loans where the loan amount can be used for any purpose. Most typically, loan amounts greater than Rs 10 lakhs are either used for funding a business (popularly called Business Loans) or for funding higher studies of children. Multipurpose loans for amounts less than Rs 5 lakhs are often used for funding wedding expenses (own or sibling) or for funding an overseas holiday. More importantly multi-purpose loans may be further classified based on the collateral offered.
These are completely unsecured loans (meaning no collateral has to be provided by the borrower). These attract high rates of interest which banks are known to negotiate for customers matching their target profiles.
The collateral pledged here is an immovable property (either residential or even commercial). These are cheaper than unsecured loans since the bank perceives a lower risk, but they are costlier than Home Loans as the purpose of using money is an unknown.
The collateral pledged here is a financial asset such as stocks/ bonds/ fixed deposit.
The collateral pledged here is gold jewellery.