What is loan? A Beginner’s Guide

The term “loan” describes a category of credit instrument in which a sum of money is lent to another party in return for the value or principal amount to be repaid in the future.

Types of Loan
There are two types of loans :

1. Secured Loans
Loans that need the provision of security in the form of collateral. Jewelry and real estate are also acceptable forms of collateral. If you default on the loan, the lender may seize the pledged collateral and sell it to recoup its principal and interest obligations.

The security value determines the loan amount, and the interest rate is fixed. These loans have a fixed interest rate and are not adjustable.

2. Unsecured Loans
In India, unsecured loans are the most popular kind. Unsecured refers to the fact that no security or collateral is required to get these loans. Simply put, no collateral is required for this type of loan, and you are not required to use your home or any other asset as security for the loan.

Such loans must be available, and you must be able to repay the loan without any trouble. A bank or other financial institution, such as a non-banking finance company, may offer you an unsecured loan.

Examples of secured loans

  • Home Loans
  • Loans Against Property
  • Gold Loans
  • Loans Against Mutual Funds and Shares
  • Loans Against Fixed Deposits

Examples of unsecured loans

  • Personal Loans
  • Short-term Business Loans
  • Education Loans
  • Vehicle Loans
  • Credit Card Loans

Final Thought

People can use loans as a valuable resource to achieve a range of objectives. A loan can be a very helpful tool whether you want to finance a new automobile, start a small business, or buy a house. When you need money that you haven’t budgeted for, knowing the many types of loans you may receive in India will be helpful. Make sure you have the knowledge you need and be ready.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button