When the question is raised on how many bank loans there are, it is not a simple number as the answer. Banks provide a great range of loans, which are targeted at various needs, purposes and financial conditions. Although the kinds might differ in some banks, there are predominant kinds of loans.
This article will discuss the various forms of bank loan, how the loans are categorized and the purpose of each loan.
Understanding Bank Loans
Bank loan is a financial product, when a bank provides money to a person or company, and agrees with him/her that the money will be returned in the future with interest.
Loans are mostly classified on the basis of:
Purpose (reason why a loan is taken)
Security (secured/unsecured)
Type of borrower (individuals or businesses)
Large categories of Bank Loans
Most bank loans can be classified in the following categories: although they vary a lot, these are the general categories:
1. Personal Loans
One of the most common types of loans is that of personal loans. They are not normally secured and hence you do not have to pledge any security.
Uses:
Medical expenses
Travel
Weddings
Emergency needs
Features:
Quick approval
Flexible usage
Higher interest rates
2. Home Loans
Home loans are those loans that are taken to buy or build a house.
Uses:
Buying a new home
Building a house
Renovation
Features:
Extended payback period (10 -30 years)
Reduced interest rates in comparison to personal loans.
It serves as collateral (property).
3. Auto, Vehicle Loans
This is a loan which assists you to buy a car, a bike.
Features:
The car is considered safe.
Moderate interest rates
Flexible repayment options
4. Education Loans
Students are helped to attain higher education through education loans.
Uses:
Tuition fees
Living expenses
Study abroad costs
Features:
Moratorium (course completion and then begins to pay)
Reduced interest rates in comparison to personal loans.
5. Business Loans
A business loan is a loan which is offered to business people and companies.
Uses:
Starting a business
Expanding operations
Managing working capital
Types:
Term loans
Working capital loans
Equipment financing
6. Gold Loans
Gold loans are loans that are secured using gold as a security.
Features:
Quick processing
Lower interest rates
Easy eligibility
7. Loan against property (LAP)
The loan is a kind of loan that enables you to borrow money with the help of mortgaging your property.
Features:
Higher loan amounts
Lower interest rates as compared to personal loans.
Long repayment tenure
8. Credit Card Loans
Certain banks will provide loans according to your credit card limit.
Features:
Instant approval
No separate documentation
Higher interest rates
9. Agricultural Loans
Such loans are given to the farmers to carry out agricultural activities.
Uses:
Purchase of seeds and fertilisers.
Equipment purchase
Irrigation
10. Overdraft and Cash Credit
These are credit facilities and not fixed loans.
Features:
Borrow as needed
Interest is only payable on the amount used.
Beridians: Majorly business.
Secured loans vs Unsecured Loans
The other way of viewing bank loans is by breaking them down into the following two categories:
Secured Loans
Require collateral
Lower interest rates
examples: Home loan, gold loan, car loan.
Unsecured Loans
No collateral required
Higher interest rates
Examples: Loan on personal, credit card loan.
What total number of types do we have?
When you add all types and subtypes of bank loans, one can have 10 to 20 or more types of bank loans. Nevertheless, there are 5-7 major types, which are used by most individuals in their everyday life.
Therefore, it is better not to worry about the precise amount but to comprehend what kind of loan will be beneficial to you.
What to do to select the appropriate Loan?
Prior to applying to any loan, put into consideration the following:
Purpose of the loan
Interest rate
Repayment period
Your income and economic well-being.
Hidden charges
Selecting the proper loan can make you not to face any financial stress.
The Reason Why there are various types of loans provided by Banks
The banks develop various loan products in order to:
Serve different needs of the customers.
Manage risk effectively
Offer competitive options
Increase customer satisfaction
The types of loans are tailor made to suit a certain purpose and the borrowing process is streamlined.
Possible Fallacies
Borrowing in a haphazard manner.
Taking borrowed funds instead of what is required.
Not taking into account interest rates and fees.
Missing EMI payments.
These errors can be avoided, which will enable you to have a good financial profile.
Final Thoughts
How many bank loans are there then? Although the number is not definite, there are various types of loans, which banks provide to cater to various needs. Starting with personal and home loans and then the business and agricultural loans, they are all used for a purpose.
It is not only important to know about the types, but to select the appropriate one according to your financial status. An appropriate loan may boost your objectives, whereas a bad loan may cost you money-wise.
When taking in a loan, it is important to always borrow in a responsible manner, to know the terms, and to repay the loan in a well-thought manner. A loan ought to be able to help you in growing financially, rather than be a liability.
FAQs
1. What will be the number of types of bank loans?
No definite number, but usually banks have approximately 10-20 types of loans, which are offered based on the needs of customers.
2. Who can get the easiest loan?
It is generally simpler to obtain personal loans as well as gold loans as they do not demand much documentation or collateral.
3. What does it mean by secured and unsecured loans?
Secured loans are those that are secured by collateral whereas unsecured loans are not and are normally charged a higher interest rate.
4. Which loan is with the lowest interest rate?
The interest rates on home loans, as well as gold loans are generally lower than on personal loans.
5. Is it possible to borrow a number of loans simultaneously?
Yes, it is possible to have numerous loans when you have income and credit score that will allow repaying the loans.