What is LOAN, Types of loan in India ?

What is LOAN, Types of loan in India ?

A loan is a sum of money borrowed by one party from another, typically from a financial institution like a bank, with the agreement to repay it with interest over a set period. The borrower receives funds for a specific purpose—such as buying a house, car, or funding a business—and commits to making regular payments to cover both the principal (the original amount borrowed) and interest (the cost of borrowing).

In India, there are various types of loans catering to different financial needs. Here are the main categories:

1. Personal Loan

Unsecured loan for personal expenses like medical emergencies, travel, or weddings.
Generally, has higher interest rates because there is no collateral.

2. Home Loan

Specifically for buying a house or renovating a property.
Offers low-interest rates and long repayment tenures (up to 30 years).
Types include regular home loans, home improvement loans, and home construction loans.

3. Education Loan

For financing higher education, both domestic and international.
Often offers flexible repayment terms, with repayment starting after course completion.

4. Car Loan / Auto Loan

Used to purchase vehicles, often secured against the vehicle itself.
Includes two-wheeler loans and commercial vehicle loans.

5. Gold Loan

A secured loan where gold jewelry is pledged as collateral.
Quick processing and lower interest rates due to collateral.

6. Business Loan

Used for business expansion, working capital, or equipment purchase.
Types include working capital loans, term loans, and MSME loans.
May require collateral depending on the amount and lender.

7. Loan Against Property (LAP)

A loan where property (residential or commercial) is pledged as security.
Allows using property equity to meet various financial needs.

8. Agriculture Loan

Provided to farmers for agricultural purposes, including crop cultivation, equipment purchase, and animal husbandry.
Special interest rates and subsidies may be available for farmers.

9. Consumer Durable Loan

For purchasing consumer goods like electronics, home appliances, and furniture.
Often provided at zero or low-interest rates with easy EMIs.

10. Overdraft Facility

Allows account holders to withdraw more than their account balance, up to an approved limit.
Interest is charged only on the used amount.

11. Credit Card Loan

A pre-approved loan offered to credit cardholders, sometimes as cash advances.
Generally has high interest but is convenient for short-term needs.

These loans can be further categorized as secured (backed by collateral like property, gold, or a vehicle) and unsecured (no collateral, higher interest rates, and based on credit score and income stability).

What is the full form of EMI?

The full form of EMI is Equated Monthly Installment.

An EMI is a fixed monthly payment made by a borrower to a lender to repay a loan over a specified tenure. Each EMI includes both the principal (the original loan amount) and interest components. The EMI remains constant throughout the loan period, making it easier for borrowers to plan their finances.

What does 700 CIBIL score mean?

A CIBIL score of 700 is considered a good score in India. Here’s what it generally implies:

Creditworthiness: A score of 700 indicates that you have a reliable track record of repaying debts, which is favorable for lenders. While it’s not the highest possible score (850 is ideal), it still signifies responsible credit behavior.
Loan Approval: With a 700 score, you have a higher chance of getting approved for loans or credit cards, though the interest rates might not be as low as those offered to individuals with excellent scores (750+).
Interest Rates: Lenders may still offer relatively competitive interest rates on loans, though a higher score could further improve terms.
Room for Improvement: Aiming to push your score closer to 750-800 can unlock even better loan options, more favorable terms, and higher credit limits.

Improving your CIBIL score further can be achieved by consistently paying your bills on time, keeping credit utilization low, and avoiding unnecessary credit inquiries.

How to get 900 credit score?

Achieving a 900 credit score (the maximum on the CIBIL scale) is challenging but possible with disciplined financial habits. Here’s a step-by-step guide to improve your score and get as close to 900 as possible:

1. Pay All Bills on Time

Timely payments are the biggest factor in determining your credit score. Set reminders or automate payments to ensure you never miss a due date.

2. Maintain a Low Credit Utilization Ratio

Keep your credit utilization below 30% of your total credit limit. For example, if your credit limit is ₹1,00,000, try to keep outstanding balances below ₹30,000.
If necessary, request a higher credit limit to keep your utilization ratio low while spending responsibly.

3. Avoid Multiple Credit Inquiries

Every loan or credit card application results in a hard inquiry that temporarily lowers your score. Avoid frequent applications for credit within a short period.

4. Build a Mix of Credit Types

A mix of secured loans (like a home or car loan) and unsecured loans (like a personal loan or credit card) can positively influence your score.
Having diverse credit shows lenders you can manage multiple types of debt responsibly.

5. Regularly Check Your Credit Report

Reviewing your credit report helps you spot any inaccuracies, errors, or potential fraud. Report discrepancies to CIBIL and have them corrected promptly.

6. Maintain Old Accounts

The longer your credit history, the better. Older accounts add to your credit age, a key factor in your score. Avoid closing old credit card accounts if possible.

7. Avoid High Outstanding Balances

Paying off credit card balances each month and reducing outstanding loans can help improve your score over time. Keep your debt-to-income ratio low.

8. Avoid Settling or Defaulting on Loans

Always repay loans in full rather than opting for settlement, which reflects negatively on your credit report. Defaults can significantly impact your score.

9. Increase Tenure for Better Repayment History

For loans, selecting a longer tenure results in smaller EMIs, making them easier to manage. Consistent EMI payments build a positive repayment history.

10. Be Patient and Persistent

Building a high credit score takes time. Consistent positive behavior will gradually push your score higher.

Disclaimer: The information provided here is for educational and informational purposes only and should not be considered as financial advice. Loan approvals are subject to the lender’s terms and conditions, eligibility criteria, and may vary based on the applicant’s credit score, income, and repayment history. Interest rates, fees, and other charges are subject to change as per the lender’s discretion. Borrowers are advised to carefully read and understand the terms and conditions of any loan agreement before committing. The provider of this information does not guarantee loan approval or specific terms. Please consult a financial advisor for personalized advice.