According to a CEIC Data report published late last year, India’s domestic credit reported an 8.5% YoY growth to reach $2,437.3 billion in December 2020. This growth can be attributed to an individual’s changing priorities amidst the global economic instability, as they are now evaluating their expenses and investments very closely.
The most popular Loan types in the Indian credit market are unsecured personal loans and secured home loans, both of which saw a dramatic rise within the last year.
- According to an RBI report, 28% of the total credit is accounted for by unsecured personal loans.
- The average home loans ticket size increased from Rs.23.82 lakh in 2019 to Rs.26.41 lakh in 2020.
With the government’s increased efforts to restart businesses and stabilise livelihoods, individuals have many credit options available to them. However, easier accessibility means that potential borrowers should judiciously approach financial institutions when they apply home loan, among other credit types.
Loan categories in India
Loans in India can be broadly categorised based on the requirement of collateral into the following –
- Secured loans – backed by collateral in the form of assets like property, gold, FDs, and investments, among others.
- Unsecured loans – not backed by any security, usually extended purely based on CIBIL scores and repayment history.
Popular secured loans in India
- Home loans
Financial institutions extend this secured mode of finance to provide borrowers with the funds to buy or build a property of their choice. The loan amount disbursed and the home loan interest rate depends on factors like income, job experience, and fixed liabilities.
In India, housing loans include home construction loan, land purchase loan, balance transfer, and top up loan. Home loans usually have an end-use restriction; the lender will directly transfer funds to the broker instead of the borrower.
- Loan against property
In LAP, applicants pledge a residential, commercial, or industrial property to avail funds equivalent to a certain percentage of its current market value. A loan against property essentially utilises the dormant value of a property, which can fulfil other requirements like education, wedding, or medical emergencies.
- Gold loans
As the name suggests, gold loans require pledging gold coins or jewellery as collateral to avail funds equivalent to a certain percentage of the gold’s pledged value. Unlike home loan or LAP, gold loans are used to meet short term financial needs, and the repayment tenor is smaller.
Popular unsecured loans in India
- Personal loan
With no end-use restriction, a personal loan can be utilised to meet all types of expenses like weddings, vacations, home renovation, medical costs, and for debt consolidation. However, being an unrestricted loan, these usually come with a higher interest rate and require a good CIBIL score and stable income as eligibility criteria.
- Education loan
An education loan covers the basic tuition fees of higher education courses at reputed institutions in India and abroad. Students are the primary borrowers and require co-applicants like parents, siblings, or spouses as co-applicants. Borrowers get a moratorium period following course completion, wherein the student can choose not to pay the loan EMIs.
How to apply for loans in India?
The application process for various loan types is mostly similar to different financial institutions in the country. To better understand the loan application process, take a look at how one can apply for a home loan in India.
The overall home loan process can be summarised into three steps, which are discussed below –
- Analyse your financial situation
One of the first things you need to check before applying for loans is determining your repayment capacity. Borrowers can use an EMI calculator for home loan to analyse their financial situation and apply for a principal that they can repay comfortably.
- Check the eligibility criteria
As home loan eligibility criteria vary among lenders, applicants need to check the eligibility criteria on the lender’s official website or refer to brochures highlighting the same. Make sure to enquire about the factors affecting home loan eligibility to improve the chances of approval.
- Visit the financial institute or fill the online form
With all eligibility criteria met and documents needed for home loan ready, applicants can visit the lender personally and consult with the loan manager. Or, they can skip past all these steps by applying for a home loan online.
To streamline the entire process with minimum documentation, some HFCs in India extend pre-approved offers, which can be availed on products like home loans, loan against property, etc. You can check your pre-approved offer using a few essential details like name and contact information.
Easier availability of various loan types has significantly helped Indian markets get back on track despite the world going through an unprecedented crisis. The advent of the home loan online application process is set to boost the credit market even further. Individuals can apply for home loan conveniently in just a few steps.
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