Various Types of Loans provided by Indian Banks

Indian banks provide various types of loans depending upon profile of borrower and his requirement. However, some of the common types of loans provided by Indian banks, NBFCs are as under:

  • Project finance or Project loan

One of the most important types of debt finance or loans are project financing. When a new company wants to start a project or when an existing company wants to expand the business and set up new project, they approach banks and financial institutions for financing that particular project. This is called as project financing or project loan.

One of the peculiar thing about project finance or project loan is that it is provided on basis of project viability and therefore, even if company do not have any past profitability record or number of years of business operation, still banks and financial institution can provide project finance or project loan on basis of project report and collateral security.

Types of Loans

In India, normally only nationalized banks and NBFCs provide project finance or project loans and not private banks.

Under project finance, banks provide funding upto 75% of cost of project. Balance 25% of cost of project need to be arranged by borrower themselves.

Before granting project finance or project loans, banks check the project viability or project feasibility by reading project reports and analyzing CMA data.

  • Mortgage Loan

There are two types of mortgage loans. First is Home loan and second is Loan against property.

a. Home Loans

Consumer opts for home loan for variety of purposes like renovation, construction, home extension, purchasing new home. They have fixed interest rate or adjustable payment terms. Home loans also provide tax benefit on payment of principal amount of loan as well as on interest paid on home loan. Normally, interest on home loan varies between 8.5% to 11% depending upon financial and legal profile. Also, maximum 85% of property value is given as home loan by banks and NBFCs.In case of Home loans, money is given by banker directly to seller of home and not to buyer.

b. Loan against Property

Loan against property can be taken by individuals and businessmen for meeting any purpose like purchase of new machinery, expansion of business, renovation of house, purchase of another property or meeting personal liabilities like education, medical expense or marriage expense etc.

There are no tax benefits available in case of loan against property as the case was in Home loan. It can comparatively less rate of interest as compare to business loans and fixed installment [principal and interest] is paid by borrower for specified period. Normally, 50% to 70% of market value of property can be availed as loan against property. Normal rate of interest in case of loan against property varies between 11 to 15% depending upon financial and legal profile.

  • Business Loan

Business loan are normally taken for expansion of business, meeting working capital requirement, purchase of fixed assets or starting a new business. Government of India has introduced many lucrative schemes and easy business loan for new business owners who want to start a new business.

Business loans can be secured business loan or unsecured business loan.

  1. Secured business loan

Secured business loans means that some security has been given for availing such loans like property, vehicle, stock, debtors, plant and machinery etc. Rate of interest of secured business loans are less as compare to unsecured business loans. Such loans have tenure of approx. 36 months and rate of interest varies between 13% to 15% depending upon profile of the customers. Different types of secured business loans can be term loan, Bank overdraft or Overdraft facility, cash credit, working capital loan etc.

     2. Unsecured business loan

Unsecured business loan means that no security has been given for availing loans. Therefore, rate of interest of unsecured business loans are higher as compare to secured business loans since more risk are involved in such loans. Such loans have tenure of approx. 12 to 24 months and rate of interest varies between 16% to 22% depending upon profile of the customers. Here, at least one property i.e either residential house or office shall be owned by the borrower.

  • Personal Loan

Personal loan are most popular type of loan taken by individuals who are normally salaried employees for purpose of meeting personal expenses like marriage, vacation, travelling, medical expense, repayment of debt etc. Personal loan are unsecured loans and given on basis of financial credentials of borrower whether salary income or profession income or business income or any other source of income. Personal loan have tenure between 12 months to 60 months depending upon amount of loan and EMIs. Any prepayment by borrower attracts prepayment fees. Personal loan are given on purely on credit profile and CIBIL. Interest rate of personal loan varies between 15% to 25%. It is most suited for salaried employees and professionals.

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Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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