Various Loan Options Provided by Indian Banks
In India, banks offer two main categories of loans: secured and unsecured. The specific requirements for these loans vary based on the loan type and lender but generally follow these patterns.
Secured Loans
Secured loans require collateral, which can be an asset pledged by the borrower. Common types of secured loans and their requirements include:
Gold Loans
- Collateral: Gold jewelry or coins with at least 18-carat purity.
- Purpose: Quick liquidity by pledging gold assets.
- Requirements: Proof of gold ownership, KYC documents, and other lender-specific documentation.
Loan Against Securities
- Collateral: Stocks, mutual funds, bonds, life insurance policies, National Savings Certificates (NSCs), or Kisan Vikas Patras (KVPs).
- Loan-to-Value (LTV): Typically up to 70% of the pledged securities' value.
- Repayment: Monthly interest payments with flexible principal repayment.
- Conditions: If the value of securities drops, borrower may need to pledge additional assets to maintain LTV.
Vehicle Loans
- Collateral: The vehicle being purchased.
- Use: Specifically to buy automobiles, motorcycles, or boats.
- Risk: Lender can repossess the vehicle if the loan is not repaid.
Home Loans
- Collateral: The property being purchased or constructed.
- Purpose: Buying or renovating a home.
- Documentation: Proof of identity, address proof, income proof, ownership proof of the property, etc.
General Requirements for Secured Loans: - KYC documents (Aadhar Card, PAN Card). - Proof of income like salary slips, business documents for self-employed. - Bank statements (typically last 6 months). - Proof of ownership of the collateral. - Credit report verification. - Longer processing times compared to unsecured loans due to collateral verification.
Unsecured Loans
Unsecured loans do not require collateral but rely on the borrower’s creditworthiness and income.
Typical Requirements for Unsecured Loans (e.g., personal loans, business loans):
- The borrower must have a stable job or business with steady income.
- For self-employed individuals, the business should typically be operational for at least 3 years.
- Minimum income thresholds vary by lender.
- A strong credit score is essential to demonstrate repayment capacity.
- KYC documents like Aadhar and PAN cards.
- Income proof such as salary slips or business financial statements.
- Bank statements showing regular income flow.
- There are fewer documents compared to secured loans, and processing is usually faster since no collateral verification is needed.
Unsecured loans can be used for various purposes and are not always restricted to specific ones, unlike certain secured loans like home or car loans.
Summary Table
| Loan Type | Collateral Required? | Common Collateral Assets | Key Requirements | Use Case | |------------------------|-------------------------|----------------------------------|------------------------------------------------|----------------------------------| | Gold Loan | Yes | Gold jewelry (≥18 carats) | Proof of gold, KYC, income proof | Quick liquidity against gold | | Loan Against Securities| Yes | Shares, bonds, mutual funds | Proof of securities ownership, KYC, income, maintain LTV | Maintain investments while borrowing | | Vehicle Loan | Yes | Vehicle purchased | Proof of identity, income, vehicle documents | Buying vehicles | | Home Loan | Yes | Property | Property documents, income proof, KYC | Buying/renovating property | | Unsecured Personal Loan| No | None | Stable income, strong credit score, KYC | Various personal/business needs |
Note: The exact documentation and eligibility criteria may vary slightly depending on the lender's policies and loan amount. Secured loans usually have lower interest rates and higher loan amounts but require asset pledge, while unsecured loans offer more flexibility but with higher interest rates and stricter credit requirements.
This article provides a basic overview of secured and unsecured loans in India. For more specific information, we recommend consulting with a financial advisor or researching the policies of various lenders.
- To use an EMIs (Equated Monthly Installments) calculator for a loan against securities, one should input the loan amount, interest rate, and the Loan-to-Value (LTV) ratio of their pledged assets, which may include mutual funds, bonds, stocks, life insurance policies, or other securities.
- Prioritizing mutual funds, debt funds, equity funds, or fixed deposit investments within one's personal-finance portfolio can positively impact their financial future and overall wealth generation.
- In the Indian banking-and-insurance sector, the industry has seen significant growth in the past few years due to increased competition, digitalization, and a greater emphasis on personal-finance education and financial inclusion.
- A strong credit score is essential when applying for a business loan, as it demonstrates the repayment capacity to the lender, making loan approval more likely and potentially securing favorable loan terms.
- When considering investing in mutual funds, it's important for individuals to understand the underlying industry trends, business outlook, and fund performance before making an investment decision.
- The business of banking and insurance not only caters to corporate entities but also plays a crucial role in personal-finance management by offering products like savings accounts, fixed deposits, and various types of loans to individuals, helping them manage their personal finances effectively.
