What are the Different Types of Loans in India

A loan entails lending money to a person by the institutions, organizations, or individuals and expects interest from the borrower together with the principal. The interest serves as an incentive to the borrower pushing him or her to act and pay within the timelines drawn on the promissory note. Here in this article, I am going to explain the types of loans in India.

In today’s world, loans are a very good option and they can be used to fulfill people’s dreams. In India, loans are classified in terms of security (secured and unsecured), time duration (short or long term loans), and end-use. There are mainly two types of loans in India that are offered.

If you are planning to get a loan, do consider calculating loan EMI using our free online EMI Calculator for better planning of loan repayment.

Loan Classification in India

Loans in India are classified in two main types:

1. Secured Loan

In the secured loans, the lender expects collateral attached to the loan amount. They either assets belonging to the person borrowing the loan or anything that can stand for the loan in case the person can’t afford to repay the amount borrowed plus the interest fully. Some of the loans which come under secured loans are; 

  • House loan
  • Car loan
  • Land loan
  • Mortgage loan
  • Gold loan

Features of secured loans in India

  • Collateral: The lender uses assets as security in case of loan repayment defaults. Secured loans require collateral so that they can be approved.
  • End-use: The usage of these loans can be restricted to flexible. In case you borrow a loan to build a house, the loan is not supposed to be used in any other way than buying the car. The car is the property of the lender until payment is fully settled. In cases of loan against property, the end use of the loan is not restricted. 
  • Eligibility: In India, you must be of age (21 years), with good credit history and standing employment history as well as remarkable consistency in income for you to secure a loan under the secured loan program. 
  • Process: The approval and disbursement of the secured loan may take a number of days depending on the type of loan applied for. Some of the loans which require detailed filing have to take time for confirmation of the credentials. 
  • Interest rates: The interest rates are lowered because the lender has collateral which stands for the loan in case of default. 
  • Loan amount: One can get up to 80% of the value of the property that is being used as collateral also for mortgaging property; one can get up to 60% of its value. 
  • Tenure: Secured loans can either be medium or long-term loans and the repayment periods, depending on the type of loan or the lender, can be repaid for years or a couple of decades. 

2. Unsecured Loans

The main considerations for eligibility in this type of loan are the creditworthiness of the borrower. They never have attached collateral to stand for the loan in case of default. Some of the loans which come under unsecured loans are;

Features of unsecured loans

  • Collateral: Most of the unsecured loans are used in multiple activities. The lending decision is arrived at through a thorough cross-check of the borrower’s background data and credit history. 
  • End-use: The loan usage is not limited and therefore the borrower can decide to use it in any way beneficial to him or her. 
  • Eligibility: The borrower must be of age (21-65 years), be employed with a good salary scale or self-employed with good income flow and well-maintained credit history. 
  • Process: They take much less time to be approved because there are very few legal confirmations needed.
  • Interest rates: This is one of the most expensive loans when it comes to interest. Its interest can even be more than 30% in a year depending on the borrower’s credit history with the lender. 
  • Tenure: The repayment period for these ranges between 1-5 years and its very flexible on its usage terms. It’s classified under the short term loans. 

Different Types of Loan in India

1. Home Loan

Any person with the interest of borrowing a loan is eligible for a home loan and will be provided if he or she has a good credit score. Home loans are borrowed for purposes such as:

  • Home extensions
  • Construction of home
  • Home renovation projects 
  • Land purchase loans 

The bank allows borrowers to get up to 85% of the value of the property they want to invest in. Based on their value of value from other institutions. The repayment period for housing loans ranges from 5-20 years. The interest rate lies between 6.5% to 8.6%. House loans come under secured types of loans in India.

2. Education Loan

The education loans are given to students either schooling in institutions within India or outside India. Those within India get up to Rs.7.5 lakh while those schooling from outside India gets up to s. 15 lakh. The repayment only is done after course completion, two years, and six months from the year of completion. The tenure of repayment ranges between 10 to 15 years depending on the loan amount, and the time the repayment commenced. The interest rate does not go below 11% and doesn’t rise above 15%.

3. Car or Vehicle Loan

A car loan, or vehicle loan comes under secured types of loans. It facilitates the acquisition of a new or used vehicle by providing financing options. Typically secured by the purchased vehicle itself, these loans come with fixed or floating interest rates and manageable repayment periods. Car loans empower individuals to own a vehicle without making a substantial upfront payment, enhancing accessibility to personal transportation while allowing borrowers to spread the cost over a predetermined period.

Vehicle loan is easy to get having fulfilled the following;

  • Minimum net annual salary or income ranging at Rs.10, 000/= per month and Rs.2.5 lakh of the respective lender.
  • A minimum of one full year employment.
  • Minimum of 3 years’ operating the current business.
  • For self-employed, a minimum of net annual business income between Rs.10,000 /=per month and 1,80,000 /= per annum. 

4. Business Loan

A business loan is acquired by people who have ventured into business for either expanding or starting business firms. The loan varies between one lakh and one crore. The eligibility is based on the credit score and the borrower must-have in the business venture for at least 3 years. The tenure is variable between 6 months to 5 years with an interest rate varying between 12% to 17%.

5. Personal Loan 

A personal loan is given to individuals based on their occupation, profession, or business. The loan is flexible to be used for any purpose. The repayment period runs from 12 months to 60 months depending on the loan amount. The interest rates range from 15%to 28% from different lending institutions. The bank rules are against the repayment of loans within the initial period of 6 months.

6. Gold Loan

Gold loans offer a swift financial solution, allowing individuals to leverage their gold assets for quick funds. The borrower pledges gold jewelry or ornaments as collateral, and the loan amount is determined based on the value of the gold. With relatively simpler approval processes and flexible repayment options, gold loans are a popular choice for those seeking immediate financial assistance.

7. Loan Against Property (LAP)

Loan Against Property (LAP) serves as a versatile financing option for property owners, enabling them to unlock the value of their real estate assets. Whether residential or commercial, the property is mortgaged to secure the loan. LAP provides substantial loan amounts at competitive interest rates, making it an attractive choice for individuals seeking sizable funds for diverse purposes like business expansion or meeting financial obligations.

8. Personal Overdraft

Personal overdraft is a flexible credit facility associated with an individual’s bank account. It provides account holders with the ability to withdraw funds exceeding their account balance up to a predetermined limit. Interest is charged only on the utilized amount, offering financial flexibility for unforeseen expenses. Personal overdrafts are advantageous for managing short-term cash flow gaps and maintaining financial liquidity.

9. Two-Wheeler Loans

Tailored for the purchase of motorcycles and scooters, two-wheeler loans facilitate easy ownership of vehicles. These loans typically come with competitive interest rates and flexible repayment terms. By providing a structured financing solution, two-wheeler loans empower individuals to own their preferred mode of transportation without a substantial upfront payment, enhancing accessibility to personal mobility.

10. Consumer Durable Loans

Consumer durable loans cater to the growing demand for electronic gadgets and appliances. These loans enable consumers to acquire high-value durable goods with ease, as the cost is distributed over affordable installment payments. With quick approval processes and minimal documentation, consumer durable loans make it convenient for individuals to upgrade their lifestyle by acquiring the latest consumer electronics and appliances.

11. Loan Against Securities

Loan Against Securities allows individuals to leverage their financial investments, such as LIC, FD, stocks, bonds, or mutual fund units, to secure a loan. This type of loan provides liquidity without requiring the sale of securities, allowing borrowers to meet immediate financial needs while retaining ownership of their investments. Interest rates are generally lower compared to unsecured loans, making it a cost-effective financing option.

If you have a FD or LIC then you can easily get a loan on these securities. You must read our guides for loan against Fixed Deposit and loan against LIC.

12. Microfinance Loans

Microfinance loans play a crucial role in fostering financial inclusion by providing small loans to low-income individuals or groups. Aimed at supporting entrepreneurial initiatives and small businesses, microfinance loans empower borrowers to generate income and improve their economic well-being. These loans often come with simplified application processes and flexible repayment terms, making them accessible to those who may have limited access to traditional banking services.


I’ve explained the types of loans in India that are provided by the banks and other lending institutions. I hope you got an idea of loan types in India. Both secured and unsecured loans have their disadvantages, therefore any borrower needs to consider the terms for each before arriving at his or her decision to apply for the loan.

Frequently Asked Questions (FAQs)

What are the various types of loans available in India?

In India, a diverse array of loans caters to different financial needs. These include home loans for property purchase, personal loans for varied expenses, car loans for vehicle acquisition, education loans for academic pursuits, business loans for entrepreneurial ventures, gold loans secured by gold assets, and more. Each type is designed to address specific financial requirements with tailored terms and conditions.

How do gold loans work, and what makes them a popular choice in India?

Gold loans involve pledging gold jewelry or ornaments as collateral to secure a loan. The loan amount is determined based on the value of the gold. These loans are popular in India due to their quick processing, minimal documentation, and accessibility. They offer a swift financial solution for urgent needs, and the borrower can retrieve their gold upon repaying the loan.

What distinguishes a Loan Against Property (LAP) from other types of loans?

A Loan Against Property (LAP) is secured by mortgaging residential or commercial property. It stands out for providing substantial loan amounts at competitive interest rates.

How can property owners benefit from Loan Against Property (LAP)?

Property owners benefit by unlocking the equity in their real estate assets, enabling them to meet diverse financial needs, such as business expansion, debt consolidation, or other significant expenses.

What is a Personal Overdraft, and how does it provide flexibility in managing finances?

A Personal Overdraft is a flexible credit facility linked to an individual’s bank account. It allows account holders to withdraw funds exceeding their account balance, up to a predetermined limit. Interest is charged only on the utilized amount, providing flexibility to manage short-term cash flow gaps and unexpected expenses without the need for additional loan applications.

How do Microfinance Loans contribute to financial inclusion in India, and who can benefit from them?

Microfinance loans play a crucial role in promoting financial inclusion by offering small loans to individuals and groups with limited access to traditional banking services. Low-income individuals and small businesses benefit from these loans, empowering them to undertake entrepreneurial activities, generate income, and improve their overall economic well-being. Microfinance loans often come with simplified processes and flexible terms to cater to the specific needs of underserved communities.

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