Download App app-link

Different type of Loans: Which one suits you the best?

Once in a lifetime almost all of us come across financial crisis and it’s not necessary that we have a handful of cash to cover the expenses. There are situations when we are not left with any other option except borrowing. Such situation can arise when you have calculated and will be earning more with the borrowed money instead of paying much interest or secondly, if you are not left with any other choice. This sudden need of cash can arise to start a new business, buy a new car or any other emergency.

If you need to borrow the money, there can be many options as a cash advance that can immediately put money in your hands. There are lots of ways to get a credit or borrow money. Before choosing how to borrow you have to understand for how long and how much amount one needs to borrow and then look for the open options available in the market as per your need. Though, the cost with every type of loan varies extensively and it’s worth spending a good amount of time to research for the most suitable type of loan for you. Such popular sources of funds have both pros and cons associated with them.

Type of loans

Bank Overdrafts

Bank OverdraftAn overdraft is a facility given by the Banks/ lenders/ financial institutions as an extension of credit even when the account reaches to zero. An overdraft facility allows the customer to withdraw the money even if his/ her account has no funds or not enough to cover the present expenses. It needs a prior agreement with the lender. With an overdraft facility, the amount is withdrawn within the authorized limit and also the interest is charged as per the agreed terms. If the negative amount exceeds the agreed amount then either an additional fees is charged or the interest rates may go higher. If the overdraft amount is not paid on time, your Bank may turn your account to the collection department. This action from the collection department can affect your credit score which in turn reduces your chances of borrowing in future. Examples of bank overdrafts are Cash Credit Limits, Over Draft Facility, Dropline Overdrafts, Packing credit limits etc.

Term Loans

term loan

A term loan is a debt provided by an individual or an organization to another individual or organization over an agreement that specify the principal amount, the interest rate and the repayment date. In a loan, the borrower borrows or receives an amount and repays it in equal installments on a later date. Loans are offered in wide range by different Banks/ NBFC’s as per your requirements with attractive interest rates .These type of loans needs to be repaid in a specified time period, that’s why they are called as term loans. The interest amount and the fees generated due to loan is the primary source of income for the financial institutions. Term Loans can be secured or unsecured loan depending on the need of the borrower. (Know the difference between Bank’s & NBFC’s)

  • Secured Loans: A secured loans involve collateral that works as a security for the lender, against which the lender will lend the required loan. This collateral can be repossessed by the lender in case of non repayment of the loan amount within the time frame. Interest rates tend to vary during the life of the loan depending on the borrower’s choice of fixed or floating rate of interest. The tenure may vary from 1 year to 25 years. Both the interest rates and the tenor depend on the eligibility criteria of the borrower. Examples of secured loans are Home Loans, Loan against property, Auto Loans, Gold Loan, and Equipment finance etc. (All you wanted to know about Secured Loans)
  • Unsecured Loans: An unsecured loans such as personal loans or business loans are not being supported by any security and are given solely on the financial credibility of the borrower. These loans have higher rate of interest as compared to secured loans as they are more risky to the lender. This loan allows the borrower to borrow a fixed amount for a limited period and also the rate of interest. Along with all the repayments the full payment is to be repaid by the end of the loan. The tenure for the loan ranges between 1 to 5 yrs and the early repayment charges need to be checked with the lender. Example of unsecured loans are Personal Loan, Business loan, Unsecured over draft, credit card etc. (Mortgage shaped by Unsecured Loan)

Credit Cards

Credit Card

Credit cards are a type of unsecured loans and can be used to pay bill for the services and buying goods. A credit card comes with a maximum limit which is decided by the card company depending on your income, present debts and your repayment track. It provides you a facility to use the credit limit for a month and if it is paid on time, the borrowers do not have to pay any interest charges on the same. Borrowing from credit cards can be a dangerous debt if not used properly. Credit cards being not supported by any security or collateral have higher interest rates. They also come with relatively higher than normal fees, overage charges and other traps that keep you under debts of a credit card company for a longer period. To control over a credit card amount is difficult as compared to other types of loans or debts. Your credit type, new credits or new loans, owed amount, length of credit history and last but not the least your repayment history are the few factors that determine your credit score. Extensive use of credit cards or exceeding from the maximum limit provided can negatively affect your credit score. The damage can be more unbearable if you fail to repay your debts on time. (Know Smarter Way to use Cards)

Other forms of borrowing:

The other ways of borrowing in India mostly include peer to peer borrowing, store cards, group loans, payday cards etc.

If you find it difficult to choose or handle your current debts it’s good to take an advice from experienced debt advice agency or feel free to talk to the experienced team of Mudra Home.


Home Loan    Loan Against Property    balance-transfer    Business Loan    Personal Loan

Convert Your Rent Into EMI!



Recent Posts