Key loans types offered by banks/NBFCs to individuals
Home Loans
Banks and Housing Finance Companies (HFCs) offer various home loans schemes for purchasing under construction or ready-to-move home properties, plot purchase and construction, home renovation, home extension, etc. Here are some of the important points that prospective borrowers should consider while applying for home loans:
- Interest rates: Most lenders set the home loan interest rates of their loan applicants based on their income, credit scores, occupation profile, employer’s profile, etc. The interest rates offered on home loans by top banks/HFCs usually start from 8.45% p.a.
- Loan amount: Lenders offer home loan amounts up to 90% of the property’s value based on the loan amount and credit profiles of their loan applicants. The rest of the component has to arranged by the borrower from his own resources in the form of down payment or margin contribution. The proportion of the property’s value financed through home loan is also known as home loan LTV ratio. The LTV ratio for home loans of up to Rs 30 lakh can go up to 90% of total property’s value and those availing loans between Rs 30 lakh to Rs 75 lakh can get up to 80% of the total property’s value as home loan. The LTV ratio for home loans above Rs 75 lakh can go up to 75% the property’s value.
- Loan tenure: The tenure for home loans can go up to 30 years depending on the loan applicant’s age and their repayment capacity.
- Fees and charges: Lenders offering home loans usually levy multiple charges on their borrowers both at the time of loan application and during the loan tenure. Some of the home loan processing fees and charges levied by lenders include processing fees, part prepayment/foreclosure charges, penal charges on late payment of EMIs, administrative charges, etc.
- Eligibility criteria: Although the eligibility criteria for availing home loans differ from one lender to another, most lenders set the following home loan eligibility criteria for their loan applicants:
- Nationality: Indian residents, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs)
- Loan applicants with credit scores of 750 and above have a higher chance of availing personal loans as lenders usually consider such loan applicants as creditworthy
- Age limit: 18 to 70 years
- Work experience: At least 2 years (for salaried)
- Business continuity: At least 3 years (for self-employed)
- Income: At least Rs. 25,000 per month (for salaried) and minimum Rs 2 lakh (for self-employed)
- Apart from the criteria mentioned above, lenders also look at the property you are buying and its location while evaluating your eligibility for availing home loans
- Documents: Most lenders require their loan applicants to submit KYC documents for proof of identity, age, income and address along with the property documents for availing home loans. Lenders might ask their applicants to submit additional home loan documents, apart from the ones mentioned above, based on their loan applicants’ profile.
Personal Loans
Personal loans are offered by several banks and non-banking financial companies (NBFCs) to both salaried and self-employed individuals. Lenders usually provide unsecured personal loans to their applicants wherein they do not need to furnish any collateral while applying for the loan. Loan applicants can use the loan proceeds for personal (except for speculative), professional, business-related and debt consolidation needs. Here are some of the important points that prospective borrowers should consider while applying for personal loans:
- Interest rates: Lenders usually set the interest rates for their personal loan applicants based on their income, credit scores, loan amount, occupation profile, existing relationship with the lender, employer’s profile, etc. The personal loan interest rates offered by top lenders usually start from 10.49% p.a. with some public sector banks offering lower rates of interest on their personal loans.
- Loan tenure: Most lenders offer personal loans for tenures of up to 5 years, with some public sector banks offering a repayment period of up to 7 years for their loan applicants.
- Loan amount: Lenders set the loan amount for their personal loan applicants based on their credit profile. Lenders usually offer personal loan amounts of up to Rs 40 lakh to their loan applicants, with some lenders sanctioning higher loan amounts based on their discretion.
- Fees and charges: Some of the personal loan processing fees and charges levied by lenders on their loan applicants, both at the time of loan application and during the loan tenure, include processing fees, partial prepayment or foreclosure fees, penal charges on late payment of EMIs, etc.
- Eligibility criteria: The personal loan eligibility criteria set by most lenders for their loan applicants are provided below:
- Age: 18 to 60 years
- Income: At least Rs 15,000 per month for salaried applicants and Rs 5 lakh p.a. and above for self-employed individuals
- Lenders usually prefer offering personal loans to applicants with credit scores of 750 and above as they usually consider such loan applicants as financially disciplined.
- Work experience: At least 2 years with a minimum 1 year in the current organisation.
- Business continuity: Minimum 2 years for self-employed professionals
- Documents: Lenders usually ask their loan applicants to submit personal loan documents based on the category they belong to i.e. salaried, self-employed, resident Indian, NRI, pensioner, etc. Loan applicants availing personal loans usually have to submit multiple KYC documents for proof of age, identity, income and address.
Loan Against Property
Loan Against Property (LAP) allows property owners to procure funds by leveraging their residential, commercial or industrial property. Individuals availing loan against property can use the funds from this loan for meeting their personal (other than for speculative proposes) and business-related needs. Many lenders also offer the Lease Rental Discounting (LRD) facility to consumers, wherein they can avail loans by pledging the rental receipts of their tenants. Some of the main features of LAP are mentioned below:
- Interest rates: The interest rates offered for LAP applicants offered by top lenders usually starts from 8.50% p.a. The lender sets the LAP interest rates for its loan applicants depending on their credit profiles.
- Loan Tenure: The maximum loan tenures offered by lenders to their LAP applicants can go up to 20 years.
- Loan Amount: The loan amounts offered by LAP lenders can go up to 70% of the property’s mortgaged value, with some lenders offering higher LTV ratios to their loan applicants.
- Eligibility: The eligibility criteria for availing LAP may differ from one lender to another. However, most lenders have the following LAP eligibility criteria for their loan applicants:
- Age: 18 to 70 years
- Nationality: Indian residents and NRIs
- Work experience: Minimum 3 years (for salaried)
- Business continuity: Minimum 3 years (for self-employed)
- Credit score: 750 or more. Lenders may not sanction loans of applicants with lower credit scores or they may get loan approval but at higher interest rates
- Documents: Although the documents required for LAP may differ from lender to lender, most lenders require their LAP applicants to submit KYC documents related to proof of income, identity, address, employment (for salaried) and business (for self-employed) along with copies of property documents (for the property to be mortgaged).
Business Loan
Business Loan allows proprietors and businesses to raise funds for their day-to-day business operations and business expansion requirements. Lenders offers both secured and unsecured business loans to their loan applicants. The business loan products offered by lenders include term loans, working capital loans, letter of credit, cash credit, overdraft, bill/invoice discounting, machinery loans, equipment finance, merchant cash advance, bank guarantee, loans under govt. schemes, etc. Some of the main features of business loans are as follows:
- Interest rates: The interest rates offered for business loan applicants offered by top lenders usually starts from 9.75% p.a. Lenders set the business loan interest rates for their loan applicants based on their credit scores, nature and value of the security offered by the applicant, financial stability of the business entity, etc.
- Loan Tenure: Lenders usually offer business loans for tenures of up to 5 years, with some lenders offering higher repayment period for their loan applicants.
- Loan Amount: Business loan lenders usually offer collateral free loans for up to Rs 2 crore to their loan applicants, with lenders offering higher loan amounts under their secured business loan schemes.
- Eligibility: The business loan eligibility criteria offered by most individuals are as follows:
- Age: 21 years to 65 years
- Nationality: Indian residents
- Business vintage: Minimum 3 years (for self-employed)
- Credit score: 750 or more. Lenders may not sanction loans of applicants with lower credit scores or they may get loan approval but at higher interest rates
- Eligible entities: Individuals, business owners, Entrepreneurs, Self-employed professionals, Sole Proprietorships, Partnership Firms, Limited Liability Partnerships (LLPs), MSMEs, Private and Public Limited Companies, Co-operative Societies and Trusts, etc.
- Documents: Although the documents required for business loans may differ from one lender to another, most lenders require their business loan applicants to submit KYC documents for proof of income, identity and address along with copies of bank statements, proof of business existence, property documents (of the property to be mortgaged in case of secured business loans).
Loan Against Car
Loan against car is a secured financing option offered by various banks and NBFCs wherein individuals can raise funds against their existing car and use the amount to manage expenses related to higher education, home improvement, working capital or for other immediate financial requirements. Some of the main features of loan against car are as follows:
- Interest rates: Lenders usually set the interest rates for individuals availing loan against car based on factors like their credit scores, age, model and market value of the car offered as security by the applicant, etc.
- Loan Tenure: Lenders usually offer loan against car for tenures of up to 5 years, with some lenders offering higher repayment period for their loan applicants.
- Loan Amount: Lenders offering loan against car usually provide loan amounts of up to 150% of the original/market value of your car, with some lenders offering higher LTV (loan to value) for their loan against car applicants.
- Eligibility: The loan against car eligibility criteria offered by most individuals are as follows:
- Age: 21 years to 70 years
- Age of the car should usually be up to 5 years
- Nationality: Indian residents
- Salaried and Self-employed individuals
- Credit score: 750 or more
- Documents: Although the documents required for car loans may differ from one lender to another, most lenders require their business loan applicants to submit KYC documents for proof of income, identity and address along with copies of bank statements and documents of the car to be mortgaged.
Know more about types of loans
FAQs on Loan
What is a loan?
Loan is a sum of money which an individual/entity borrows from a lender/individual/entity with an agreement to repay it with interest and any other financial charges (if applicable) usually within a predetermined period.
What are the different types of loans available?
There are different types of loans categorised as per the end use of funds, collateral requirement, tenure, etc. It broadly includes unsecured personal loans, secured personal loans, home loan, loan against property, credit card loan, loan against FD, loan against securities, gold loan, car loan, etc within the broader retail loan segment. Within the business loan segment, common loan options include unsecured business loan, secured business loan, working capital loan, overdraft facility, cash credit, bill/invoice discounting, etc. Apart from these, there are scores of loan facilities in the corporate and wholesale segments.
How do I choose the right loan for my needs?
The best loan for your needs will depend on your loan requirements as well as other parameters such as interest rates, loan amount, LTV ratio, tenure, collateral/security requirements, processing fees and prepayment/foreclosure charges, loan processing and disbursal time. Thus, compare the various loan options based on these parameters and then opt for the one that costs you the least while suiting your repayment capacity.
What is the difference between a secured and an unsecured loan?
In a secured loan, an applicant is required to offer an asset (movable or immovable) as collateral/security for availing the loan. Lenders can auction the mortgaged/hypothecated asset to compensate their losses in case of loan default. On the other hand, no collateral is required to avail secured unsecured loans as these loans are offered solely on the basis of the credit profile of the loan applicant.
Can I apply for a loan even though I don’t have a credit score?
Yes, you can apply for a loan even without having a credit history. However, the chances of your loan approval will depend on your credit profile.
Can I apply for a loan online if I am self-employed?
As far as consumer loans are concerned, both salaried and self-employed individuals can make online loan applications, provided the lender offers the provision for the same. However, business loans are mostly offered to self-employed individuals and businesses as lenders usually consider business vintage, turnover/profitability, etc. when evaluating the business loan applications.
How is the interest rate determined for online loans?
The interest rate setting method for online loans would be the same as that for the offline loans. However, some lenders may set slightly higher spreads for online loans due to greater flexibility and convenience.