Different types of loans available in United States

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Different types of loans available in United States

A loan is essentially money lent with the promise of repayment within a certain period/maturity. The lender will set a fixed interest rate that you must pay on the money you borrow along with the principal amount borrowed. Here are the different types of loans available in India.

Types of loans
Different types of loans are available in India and they are classified into two factors according to the purpose for which they are used:

Secured loans
Unsecured loans
Secured loans

Loans that require collateral are those where you have to pledge an asset as security for the money you are borrowing from the lender. That way, if you can’t repay the loan, the lender still has some means of getting their money back. The interest rate on secured loans tends to be lower compared to unsecured loans.

Further Reading: 4 Major Factors That Have Led to the Growth of NBFCs in United States

Types of secured loans
1. Housing loan
Home loans are a secured form of financing that provides you with the funds to buy or build a home of your choice. You can apply for a home loan with lower interest rates online at Bajaj Finserv. The following types of home loans are available in India:

Land Purchase Loan: To purchase land for your new home
Loan for the construction of a house: For the construction of a new house
Home Loan Balance Transfer: Transfer your existing home loan balance at a lower interest rate
Top up loan: Can be used to renovate your existing home or get the latest interiors for your new home
Remember that when buying a new property/house, the lender requires you to pay a down payment of at least 10-20% of the property’s value. The rest is financed. The amount of the loan disbursed depends, among other things, on your income, its stability and current liabilities.

Must Read: What is a Loan Account Number (LAN)

2. Loan against property (LAP)
A home equity loan is one of the most common forms of secured credit. You can mortgage any residential, commercial or industrial property to avail the required funds. The disbursed amount of the loan corresponds to a certain percentage of the value of the property and varies with different loan providers.

While some lenders may offer an amount equivalent to 50-60% of the property’s value, others may offer an amount closer to 80%. A property loan helps you unlock the dormant value of your property and can be used to fuel personal life goals such as higher education for children or marriage. Businesses use credit against property for business expansion, research and development, and product development, among other things.

3. Loans against policies
Yes, you can also avail a loan against your insurance policy. Please note, however, that not all insurance policies cover this. Loans can only use insurance policies such as endowments and refund policies that have a maturity value.

So you cannot avail a loan against a term insurance plan as it does not have any maturity benefits. Also, loans cannot be availed against investment plans as returns are not fixed and depend on market performance. It is important to note that you can opt for a loan against the subsidy and the refund policy only after they have acquired the surrender value. These policies earn a surrender value only after regular premiums have been paid continuously for a period of three years.

4. Gold loans
Gold has been one of the most popular asset classes for the longest time. India’s organized gold loan industry is expected to touch Rs. 3,101 billion by 2019-20, according to a KPMG report, thanks to flexible interest rates offered by financial institutions.

A gold loan requires you to pledge gold jewelery or coins as collateral. The approved loan amount is a certain percentage of the value of the promised gold. Gold loans are generally used for short-term needs and have a short repayment period compared to home loans and property loans.

5. Loans against mutual funds and shares
Mutual funds can also be pledged as collateral for a loan, which is an ideal vehicle for long-term wealth creation. You can pledge equity or hybrid funds with a financial institution using a loan. To do so, you must write to your financier and enter into a loan agreement.

Your financier will then write to the mutual fund registrar and impose a lien on the specific number of units to be pledged. You can usually get 60-70% of the value of the mortgaged units as a loan.

Similarly, financial institutions create a lien on the shares on which the loan is taken, and the value of the loan is equal to a percentage of the value of the shares.

6. Loans against fixed deposits
A fixed deposit not only offers the security of a refund, but can also come in handy when you need a loan. The loan amount can range between 70-90% of the FD value and varies from lender to lender. However, it is essential to note that the maturity of the loan cannot be more than the maturity of the FD.

Further reading: What is Annual Percentage Rate (APR)

Unsecured loans
These are loans that do not require collateral. A lender will give you money based on past associations, your credit score and history. Therefore, you must have a good credit history to avail these loans. Unsecured loans usually have a higher interest rate due to the lack of collateral.

Types of unsecured loans
1. Personal loan

A personal loan is one of the most popular types of unsecured loans that offer instant liquidity. However, since a personal loan is an unsecured form of financing, the interest rates are higher than secured loans. A good credit score and a high and stable income will ensure that you can avail this loan at a competitive interest rate. Personal loans can be used for the following purposes:

Manage all family wedding expenses
Pay for a vacation or international trip
Finance your home renovation project
Fund the cost of your child’s higher education
Consolidate all your debts into a single loan
Meet unexpected/unplanned/urgent expenses
Further Reading: Different Types of Personal Loans

2. Short-term business loans
Another type of unsecured loans, the short-term business loan, can be used to cover the expansion and day-to-day expenses of various entities and organizations.

Working capital loans
Machinery loans and equipment financing
Small business loans for small and medium businesses
Loans for businesswomen
Loans for traders
Loans for manufacturers
Loans for service businesses
Flexi loans
With a Flexi loan, you can draw funds from the approved limit whenever needed and pay interest until the amount is used up. You can draw on the credit limit as often as you like and pay in advance when you have extra cash at no extra cost. This unique facility gives you the freedom to fully control your finances, unlike fixed term loans, and offers you savings of up to 45% on your EMIs. Here you also have the option to pay only interest as EMI, with the principal payable at the end of the tenure.

Education loans
Aspiration for higher education from reputed institutions has boosted the demand for education loans in the country. This loan covers basic course fees and related expenses, e.g

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