Types of Loans in India | Money, Banks and More
Understand the various kinds of loans that are available and what are the requirements for each
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Personal Finance
- Swati Tripathi
- 2022-12-10
- 03 min read

Before we talk about different types of loans, let us understand what a loan is. A loan is the sum of money that you borrow from a financial institution with the assurance that you will pay back the amount in the future within a certain time frame, though with interest. The amount you borrow is the principal and the interest is the amount of extra money you pay for availing the loan.  

The amount of the loan offered and the interest paid depends on various factors like income, credit history, and so on. The purpose of availing of the loan helps to decide the type of loan you should opt for.  

What are Different Types of Loans? 

Knowing the types of loans available in the Indian market is very important. This can help the borrower zero-in on the loan that s/he want. Loans can be classified under three categories on the basis of factors like the amount of risk both the parties are ready to take, consumer credit, and the purpose of the loan.  

Also Read: How to Instill Financial Discipline in Students

Unsecured Loans and Secured Loans

Lenders provide two types of loans to consumers - unsecured loans and secured loans - on the basis of risk that the lender and the borrower agree to take.  

  1. Unsecured loan
    The loan does not involve any collateral. This means that the borrower does not offer any asset as security against the loan, a reason that explains the higher interest rate of these loans. Examples of unsecured loans are credit cards and personal loans. 

  2. Secured loan:  The loan involves collateral, wherein the borrower offers an asset as security against the loan. In case of any loan default, the borrower loses the asset to the bank in order to pay the amount. This loan comes with a lower interest rate. Examples of secured loans are home loans, vehicle loans, and business loans.  

    Also Read: What Is Credit Score And How To Check It

Open-end Loans and Close-end Loans

There are two types of loans on the basis of consumer credit or the amount of money that you can borrow from the financial institution.  

  1. Open-end Loan:
    It is not a one-time loan, so you can borrow multiple times without the compulsion of paying the due amount every month. However, with each purchase, your capacity to borrow money reduces. And with each repayment, the available credit increases. An example of this loan is a credit card.   

  2. Close-end Loan:
    A close-end loan is availed for a specific time period only. A regular payment pattern is a feature of this loan. With every repayment, the loan balance keeps decreasing. In case you wish to borrow more money, you need to apply for a new loan. Examples of closed-end loans are home loans and student loans. 

    Also Read: Neobanks for students: The benefits

What are the Types of Loans in India? 

Now, let us understand various types of loans available in the Indian market that are classified according to their purpose and need.

Home Loan:

  • A home loan is a type of secured loan to buy, build or renovate a residential property. Your property acts as the security against the loan that you avail. The borrower returns the amount to the lender as regular payments or equated monthly instalments (EMI) over a certain fixed period of time called tenure.

    The repayment amount of the mortgage loan includes the principal or the money borrowed and the accrued interest. You have to pay the interest to the bank at a certain interest rate for letting you borrow the money. 

Education Loan

  • This secured loan helps to borrow money for studies in India and abroad. Just like any other loan, these come with a certain repayment period. The borrower needs to back it back along with the interest. The repayment of the loan amount does not start till you are a full-time student.

Personal Loan:

  • This unsecured loan allows you to borrow money from any bank or a financial institution to fulfil any kind of financial need.  You can use it for any purpose. Example: paying medical bills to purchasing lifestyle goods to managing marriage expenses. The amount of the loan depends on your income but it comes with higher interest rates because there is no security against the loan. 

Credit Card:

  • This is a card that allows users to borrow money while making purchases. The user can make transactions without having to pay in cash, at that point in time. So, it gives you the option to make purchases on credit and repay at a later date.     

Business Loan:

  • Various public sector banks and private sector banks offer big and small business loans in India to fulfil various business needs of individuals, large businesses, small and medium-sized enterprises (SMEs), micro and small and medium enterprises (MSMEs), etc. You do not need to provide any security or collateral to avail of this unsecured loan. 

Vehicle Loan:

  • The loan helps you to borrow money from banks or financial institutions to buy different vehicles like cars, two-wheelers, commercial vehicles, etc. When you purchase any vehicle, you can avail secured loan by paying a small down payment . To avoid any penalty /late-fee, you need to repay loan within a pre-defined period of time.

Gold Loan:

  • It is a secured loan that you can avail of against your gold jewellery or coin. The money borrowed is usually a certain percentage of the gold. You can get your gold back on successful repayment of the sanctioned loan  amount and the accrued interest. Interestingly, the money can be used for any purpose or requirement.

Loan Against Life Insurance Policies:

  • Generally, we purchase insurance policy for the financial security of our loved ones. This policy can be used as collateral to get a loan during emergencies. However, not all types of insurance plans can be utilised to avail of this loan. Some of the plans that can be used are endowment plans, whole life plans, unit-linked plans, and income plans. So, loans can also be processed against fixed deposits and mutual funds.  

Loan Against Property:

  • It a secured loan that you can avail of by offering an already constructed or purchased property as collateral or security. Therefore, it is a kind of personal loan. The loan can be used for various purposes and financial needs.

Instant Loan:

  • It is a type of personal loan which you get through quick and easy approval. The borrower can be use it for any purpose. The loan is available for salaried or self-employed individuals.

Even students can apply for the same through various platforms.  NUCash.money is one such simple and user-friendly online platform which offers instant personal loans for students to fulfil various needs, including lifestyle needs. 

Most neo bank offers loans for a reasonable fee. No hidden costs is involved. The entire process is transparent.  

Also Read: What are the benefits of a student bank account?



Q. What is a top up loan? 

In the case of an existing home loan, if you need an additional amount, you can apply for another loan under the same category by following the same process.   

Q. Are there tax benefits on home loan? 

A home loan helps get tax benefits in a financial year of up to ₹1.50 lakh for principal repayment and up to a maximum of ₹2 lakh for the interest paid on the loan. 

Q. What is an EMI calculator? 

As the name suggests, an EMI calculator helps in calculating the estimated monthly/periodic amount to be paid back. Broadly, the calculator helps you in planning your budgets. 

Q. Are there tax benefits on education loan? 

Under Section 80E of the Income-tax Act, you can claim tax benefits on the interest paid on education loans availed for higher education. The benefit is available for 8 years or until the interest get paid for, whichever is earlier.  

Q. Who can claim the deduction for an education loan?  

You can claim the deduction if you have taken the education loan for your spouse, children, or for a student for whom you are a legal guardian. 

Also Read: Link PAN Card with Aadhaar Card?


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