Types of loan; Secured loans

  

There are so many type of loans which any can avail depending the eligibility of a particular person.  Now first what is called as loan? Loan is a money borrowed from any institution or any person with certain percentage of interest on borrowed amount along with promise for return of borrowed amount within specified period. Borrower pay the interest percentage along with borrowed amount in installments.

There are following types of loans:-

1.       Secured loans

2.       Unsecured loans

Now in this article we will discuss about secured loans.

Secured loans:-

As clear from its name this loan is offered against certain security i.e. you may call that you have to place some documents of assets for securing these loans. If a person unable to pay the loan installments then the institution or a person from where secured loan is obtained by borrower will have the right to sell the asset against which loan is secured.

There are following types of secured loans:-

(i)                  Home loan

(ii)                Loan against FDs

(iii)               Vehicle loans

(iv)              Loans against Mutual funds and shares

(v)                Loan against gold

(vi)              Loan against properties

(vii)             Loan against Insurance policies

Now we will discuss about these loans:-

(i)                 Home loans:-

Home loans are the cheapest loans of all the loans. There are few of loans which you can avail against the home loans such as:-

(a)    Loan against house construction,

(b)   Land purchase loan,

(c)    Loan to construct new house,

(d)   Purchasing a constructed house.

There are so many institutions in India which are offering these loans and Property papers are kept with the respective financial institution for securing this loan. These loans also offers you maximum loan tenure. We can get the loan for tenure of up to 30 years. Apart from maximum loan tenure against this loan you can even get government subsidy against affordable housing scheme.

This loan also reduce your reduce tax liability as the principle amount deducted against the loan will be eligible for savings limits given by government i.e. under section 80C and interest amount you paid will be claimed against the section 24 within offered limits.

(ii)               Loan against FDs:-

This loan is most convenient loan and also offered at lower cost. There are following ways for getting the loan against FD.

(a)    To get the loan against the FD

(b)   To ask the bank to issue overdraft

In Overdraft cases banks can give up to 90% as an overdraft against FD amount. In overdraft cases there is only interest to be paid every month against the said amount. There is no time limits for that types of loans.

When we raise loans against FD banks usually charge 1-2% higher than the FD interest rates. Banks usually give 80-90% loan against the FD amount.

(iii)             Vehicle loan:-

These loans are taken while purchasing a new vehicle or old vehicle. We can get the 80-90% loan against the on road price of vehicle. We can take loan upto duration of 7 years. When we are buying a new car then you must negotiate with various banks for financing the car loan at lowest interest rates and lowest processing fee.

 

This loan is usually given to lenders 3 times their annual income. In that loan your vehicle documents usually remains with the bank until your loan amount get cleared. It is advisable to pay as much down payment for this loan as you are not going to get any tax benefit against vehicle loans. Housing loans and vehicle loans are 2 most popular loans and theses are now day’s necessity for everyone.

 

While when you apply for loan against the used vehicle, age of vehicle matters the most. More is the age of vehicle lower will be loan which you can get from banks.

 

(iv)              Loan against Mutual funds and shares:-

These loans are also known as loan against securities. These also (vii)th type loans i.e. loan against insurance policy. In these types of loans in case of emergency you are not required to redeem your mutual funds, Shares and Insurance policies. You can continue your monthly SIP against mutual funds and shares without any redemption.

 

You can negotiate for interest rates against the same. Banks usually charge between 10-12% against these types of loans. There is one main things you must keep in mind before applying for these types of loans is that you have remove lien from the mutual funds or shares. Now lien is a document which gives the banks the right to sell the fund or hold it as per terms and conditions of loan.

 

Once you apply for a loan against mutual fund or shares the bank from where you have applied for the loan will send a request for removal of lien to the fund house with whom you have purchased the mutual funds. You can also enforce the partial removal of lien when have you paid few amount to the bank i.e. equivalent to the amount you have paid.

 

It is advisable to go for loan against mutual funds or shares instead of going for personal loans as personal loans are costlier than the loan against the securities. 

 

(v)                Loan against gold:-

These loans are offered against the Gold you have in physical form.  When you apply for Gold loan with bank or any other finance company they will give you the required date for evaluation of Gold value which you have in physical form. You have to take the Gold along with you to Bank on given date for evaluation by evaluator. Then depending upon the valuation loan amount of 65-90% is offered by the respective bank. Lower the amount you avail against the loan valuation lower will be interest charges against the same. Similarly higher the loan amount you claim against the valuation of Gold higher will be interest charges.

 

There are following advantages of these types of loans:-

(a)    Lower interest rates are offered against these loans as financer will keep your Gold as a security with them.

(b)   There is also option offered against these types of loans of loans is to pay only interest against the loan amount and whenever you have the additional amount for payment of loan you can pay against the principle amount.

(c)    These loans are generally have nil processing fee. So whenever you are taking loan against Gold check for any processing fee is going to be charged against the said loan.

(d)   There are no foreclosure charges in these loans as against the personal loans or various other loans.

(e)   These loans are generally processed immediately upon signing of agreement with the bank. Thus these loans have faster processing.

(f)     In these types of loans banks don’t check for any CIBIL report and they don’t require any salary proofs or any third part signatures.

(g)    You don’t have to bother about the security of your Gold kept with the banks as this is always secure.

 

(vi)              Loan against property:-

In this loan you have to pledge your property as a security or a collateral. These loans are also called as mortgage loans. These loans interest rates are higher than home loans and they will be in range from 8% to as higher as 25%. Apart from higher interest rates processing fee is also charged by financial institutions against the same. Tenure for loan against property will be up to 15 years.

 

Housing finance company such as HDFC, Indiabulls, PNB housing and various other institutions offers housing loans only and they can’t provide loan against commercial properties. Usually loan against property are offered at given at 50-70% of market value of property whereas housing loans can be obtained up-to 90% of value of house.

 

There is also advantage of loan against property against the housing loan is that we can use these funds at anywhere but in housing loan funds can be used only for buying a house.   

 

When we take a loan against property we can obtain tax benefit according to end usage. If we are using the loan amount for business purposes than we can claim the interest paid in section 37(1) of the income tax act where as if funds are used to purchase a house than the interest amount can be claimed under section 24(b).