All you need to know about the different types of loans

Everyone understand the basics of a loan. Through this financial assistance, you can easily borrow funds you require and repay it back within a given time. However, there is more to this financial product than borrowing funds.

No doubt, you will be aware of the factors of the loan such as the interest rate and the tenure. But are you aware that the value of these elements differs from type to type? Additionally, some loans require a particular type of collateral, while others may not. Do you also know that some types of loans can only be used for particular reasons? Given below are some of the different type of bank loans which you need to know:
Secured Loans: A secured loan can be obtained by borrowing funds against an asset you own.

These assets form a collateral in your loan application. They can include your home, your vehicle and event your fixed deposits. The amount you received as a loan will depend on the value of the collateral. Additionally, since your providing collateral for security sake, the interest that is provided with the loan is low. With this, you can submit more than one collateral for certain types of loans. However, you should know that, if you ever default on your loans, your lender will get the borrowed funds back by foreclosing on the collaterals provided. But the best advantage of this type of financial assistance is the fact that you can use your credit score as a means to negotiate for a higher rate. The higher the score, the more of a bargaining power you will have, in terms of theloan amount and repayment tenure.

Given below are some of the instances of secured loans:

Car loans
Bike loans
Mortgages
Business loans

Unsecured Loans: Unsecured loans are a complete contrast to the secured loan. As the name suggests, they are not secured against any assets. They are also flexible in terms of using the finances gained for any miscellaneous financial expenditures, with a few exceptions. However, they are also difficult to apply for and maintain. This isdue to the fact that lenders will first confer your credit history along with your current income, asset and debts at the time of your loan application. Once your profile is deemed appropriate, you can get theloan you want. However, with these types of bank loans lenders will charge a higher interest rate, to compensate for the risks associated the lending of funds. Additionally, certain products will also have a short tenure.

Here are some of the examples of unsecured loans:
Personal loans
Personal lines of credit
Student loans
Banking cards and department sponsored cards.
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What are the different tax exemptions for the different loans?

Tax exemptions are very common with loans in India. This is very crucial as the tax benefit many times are the difference between actually being able to purchase a product and not being able to buy a product. You should be aware of what type of tax exemptions is available for different types of loans. They include the following:

1. Home loans

These are perhaps the biggest loans which a person takes in terms of an amount of money given. Therefore, tax exemptions are given to both the principal as well as the interest earned. For the principal, up to 1.5 lakh rupees can be deducted whereas for interest earned on the loan, up to 2 lakhs in rupees can be deducted if the construction was completed at least 3 years before the financial year the loan was issued on. However, it must be noted that if the property which the loan is given for has its ownership transferred before its completion, the tax benefits availed to the person who took the loan will be not be considered and he/she will have to pay the full amount of the tax benefits availed.

2. Education loans

Before education loans were unthinkable but now with everyone going to colleges abroad, loans of this sort have significantly increased. There is no upper limit for the money which will be deducted on this kind of loan. However, it can only be used for someone who is pursuing higher education. The loan is only subjected to tax exemptions either if the full loan period is complete or if 8 years have passed since you have taken the loan.

3. Car loans

Car loans are generally cheaper than both education and home loans. This is one of the reasons that individuals who have a salary are not allowed to take car loans in India. The only people who are allowed to take car loans are either businessmen or self-employed. There have been many complaints against this and it may be changed.

4. Personal loans

Personal loans are perhaps the smallest loan in terms of an amount of money that is in question. However, these are only available for a declared business or for interest on loan repayments used for projects such as construction.

However, taking a loan is a very complex matter so it is crucial that you do not take the loan without thinking it through or consulting someone.