Types of Secured Loans Available in India

Right financial planning is very crucial in today’s times. When one is looking for any big purchase or financial investment, a loan is always a good option. Knowing the correct facts about the different loans available can help one to make correct financial decisions catering to different requirements for the loan. It can help in avoiding the long term debt as one can make financially stable plans.

Different financial institutions in India provide many types of loans according to borrowers' needs. For some, loans are a way to meet emergencies, while for others, loans act as a catalyst for growth. It all depends on the purpose and the type of loans that the borrowers have availed. Broadly, the loans are classified as secured and unsecured loans.

What are secured loans?

Secured loans mean one has to put up some kind of security to get the money. The borrower gives something as collateral. Lenders feel safer with that setup because the risk of not getting paid back drops a lot. In case the borrower can't repay, the lender just sells off that asset to get their money. This is not the case with unsecured loans, where there is no collateral, so they charge more interest to make up for it. The lower rates on secured loans are because of collateral, since there's less worry about recovery of money, as the lender can sell the asset to recover its dues.

Here are the different types of interest rates available on these loans:

Fixed Interest Rate	The rate remains constant throughout the loan tenure, with fixed EMIs.
Floating Interest Rate	Interest rate fluctuates based on market conditions and benchmark rates, with EMIs increasing or decreasing over time.
Repo-Linked Interest Rate	Highly transparent interest rate, directly linked to the Reserve Bank of India repo rate, changes whenever the RBI revises the repo rate.
Reducing Balance Interest Rate	"Interest is calculated based on the outstanding loan amount. As the principal reduces, interest payable also decreases."
Hybrid (Fixed + Floating) Rate	This rate starts with a fixed rate for the initial years, then shifts to a floating rate.
Risk-Based Interest Rate	Interest rate charge depends on factors like credit score, income, and repayment history.
Loan-to-Value (LTV) Based Rates	Interest rate varies based on the percentage of the loan taken against the asset value.

Features of Secured Loans

Some of the key features of Secured Loans:

Offers lower interest rates
Less risky as it involves a collateral deposit
Loans for different purposes, such as personal, business, education, or emergency
Cost-effective and reliable financing option
Availability of a high amount of loans
Burrower gets the advantage of a longer repayment tenure of the loan
Better credit terms, such as lower EMIs, a higher loan-to-value ratio
More structured and secure, as it involves detailed documentation for sanctions

Different types of secured loans

Home Loans

It is one of the most common types of secured loans that borrowers avail of. A home loan is a secured loan that allows you to purchase, construct, or renovate a residential or commercial property. These are long-term loans, with loan tenures ranging from 10 to 25 years. The loan needs to be repaid in EMIs. The borrower needs to submit some collateral security, which depends on the borrower's profile and the valuation of the home.

Gold Loans

These loans are taken against the gold owned by the borrower. The loan sanctioner has possession of the gold until the debt is paid. The borrower has to pay the interest along with the amount every month. The burrower can return the amount anytime and can take the gold back.

Vehicle Loans

The loan is taken for any vehicle purchase, such as a two-wheeler, four-wheeler or heavy vehicles that are used for both personal and commercial purposes. The vehicle acts as collateral for the lender, and the lender has the right to seize the vehicle at any time in case of non- repayment of the loan.

Loan against property

These loans are taken on behalf of the property of burrower (both residential and commercial) kept as collateral. The sanction loan can be used for both personal and business purposes.

Educational Loans

The loans taken for educational purposes, that includes undergraduate, postgraduate, or professional studies, either in India or abroad comes into this category. The loans cover expenses like tuition fees, living expenses, travel, books, and exam fees. One of the best features of these loans is that repayment can be done by the student after the course completion, through EMIs.

Loan against Securities

These loans are taken against the securities owned by the borrower. Here, different market investments such as shares, mutual funds, bonds and debentures act as collateral.

Agricultural Loan

Loans are offered to farmers for agricultural purposes. The loan is usually secured against agricultural land to finance agricultural activities such as purchasing seeds, fertilisers, or farming equipment.

Business Loan

Loan offered to cater for the different business requirements, such as business expansion, working capital, or purchasing equipment. Here, assets such as property, machinery, or inventory owned by the business are kept as collateral.

Comparison of different types of Secured Loans

LOAN	AMOUNT SANCTION	TENURE	INTEREST RATE
Home Loans	80-90% of the property’s market value	Long-term, up to 30 years	Low interest rate, between 7-10%
Gold Loans	75-90% of the gold’s market value	Short-term, 6 months to 2 years	Between 9-24%
Vehicle Loans	85-100% of the vehicle’s cost	3 to 7 years	Between 8-15%
Loan against property	50-70% of the property’s market value	10-15 years	8-14%
Educational Loans	₹5 lakh to ₹50 lakh	5 to 15 years	8-12%
Loan against Securities	50-70% of the value of the securities	Short term, usually up to 3 years	10-14%
Agricultural Loan	Variable loan amount depends on agricultural needs	5 to 10 years	7-12%
Business Loan	Based on the value of the collateral	Up to 15 years	8-14%

FAQS

1. What are the different types of loans are available in India?

Different types of loan available in India are home, personal, education, vehicle, gold, business loans, and more.

2. Can I get a secured loan with low credit score?

Yes, you can still get loan with low credit score. A secured loan is given against a collateral so it reduces the risk of recovery in case of non-payment.

3. Do unsecured loans have a higher interest rate?

Yes, since there is no collateral, lenders typically charge a higher interest rate on unsecured loans.

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