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Guide to Bank Loans and Credit


Loans have become part and parcel of our lives, and we take loans for various reasons, sometimes unknowingly as well. For example, if you have just paid your grocery bills, or ordered anything online, with your credit card, you have actually taken a loan from the card issuing bank. Our reasons for taking loans are varied and various. It may be for a new home, to go for higher education, to improve our homes, to garner capital for our businesses, or even to pay off other existing loans. Multiple options and multiple types of loans are available for a particular need. Moreover the cost of loans, or the interest rate, may also vary from provider to provider. Hence, before you take a loan, it is imperative that you know the different types of loans that are available to you and the types of loans that are best suited to you, both in the long run and in the short run. Go through our guide below, and know about the different types of loans, before you apply for one, and save money.

Guide to Bank Loans

Understanding Loans:

Loans classified by nature

Loans may be secured or unsecured. A secured loan is a loan, that is fully, or partially backed by a physical asset. For example, you car loan is backed by the car you purchased with the loan, your house loan is backed by the house, and you may also take a personal loan, pledging some asset that you may have. The secured nature of the loan reduces the risk of the bank, which reduces the interest rates.

An unsecured loan, on the other hand, has no underlying asset to it, and there is no collateral security with the loan. A typical example is your credit card limit, or a personal loan without any collateral security. Because the risk is higher for the bank, these loans generally have a higher rate of interest.

Loans Classified by mode of repayment

Loans may be repaid by various modes, but two modes are the more popular ones, as given below:

Repayment with fixed EMIs: A term loan, or a housing loan can be repaid with equated monthly instalment, over a period of time. These loans are also called instalment loans.

Revolving Credit Loans: Revolving credit have a fixed borrowing but no fixed repayment amount every month. Your credit card is a typical example. You can spend (or borrow) upto the limit offered, but can choose to pay the minimum amount due, something more than the minimum amount due, or the entire amount at one go. A similar case is with overdraft limits extended to businesses. Whatever loan amount you do not pay this month, will revolve over to the next.

Fixed Rate Loans: These loans will carry a pre-decided, fixed rate of interest, in the entire tenure of the loan, no matter what the interest fluctuations are. If interest rates go down, banks benefit, while if they go up, you benefit. Generally speaking, these loan's rate of interest is slightly higher than the market floating rate of interest, as they shield you from the ups and downs of the interest rate market.

Variable rate loans: As you have already guessed, these loans are just opposite to fixed rate loans, and they offer you a floating rate of interest, directly tied with the market rates. You rate of interest may be revised every quarter, half yearly, yearly, or even monthly. Depends on the lending institution and your agreement with them.

The most common loan types, prevalent in the US market:

Agriculture Loans

Access to financial resources is a critical factor in the growth and development of the agricultural sector in countries around the world. Agriculture loans, designed to meet the unique needs of farmers and agribusinesses, play a pivotal role in facilitating the growth of this essential industry. In countries as diverse as India, Brazil, China, the United States, the European Union, South Africa, Mexico, Thailand, Kenya, Ghana and Indonesia, agriculture loans are structured and administered in distinct ways to address the specific challenges and opportunities presented by their respective agricultural landscapes. In this exploration, we delve into the nuances of agriculture loans in these regions, shedding light on the strategies, institutions, and policies that drive agricultural finance, ultimately fostering food security and economic prosperity. Know more about Agriculture Loans.

Home Equity Loans or Mortgage Loans

A plain vanilla home equity loan is a loan that helps you to buy your dream home. The property you buy will be mortgaged to the bank till such time you pay off the loan fully. You will need to pay a percentage of the total value of the property as down payment. Interest rates are lower than other types of loans, and it is also called a 'good loan', as such a loan helps your saving habits, and also helps you to own a property in the future, while enjoying it from day one. Home loans are of different types, like VA HOME LOANS and FHA HOME LOANS.

Re-Mortgage Loans or Mortgage Refinance Loans

Once you have a mortgage loan in place, and have serviced it successfully for more than a year atleast, you can choose to re-finance it, or remortgage it, with another credit provider, and get benefits, like lower interest rates, increased or decreased period of payment, favourable EMI amount, or even an additional cash loan for your benefit. Click here to know more about Re-Mortgage Loans.

Business Loans

Business loans are convenient, and act as a boost to your business, but they are a tad bit difficult to get, due to the elaborate documentation requirement. Check our guide on how to get a business loan, and get liquidity for your business enterprise.

Debt Consolidation Loans

Are you servicing multiple loan repayments and/or credit card repayments, some big and some small? Well, a debt consolidation loan is probably the exact product you need, to bring back financial discipline in your life, save you from excessive interest payments, and to reorganize and manage your finances well, again. It is simply a loan, that serves to clear all your other existing loans, bringing them under one net, with lower rate of interest. Know more about debt consolidation loans here.

Personal Loans

One of the most popular types of loans, personal loans are, well, taken for various personal purposes. For example, you may want to take a trip, do a house improvement, pay off credit card dues, and buy jewellery and practically, anything under the sun. However, there are many factors that you should be checking, before you commit for a personal loan. Click here to know about these factors of personal loan.

Student Loans

Rising higher education costs, and the need for higher education to pregress in professional life, and made taking student loans mandatory. There are two types of student loans, federal and private, and one always first utilizes his or her entire federal loan limit amount, plus grants if any,, and then explore the private loan lenders for the balance requirement. Why, you will know by clicking onto our student loan guide page.

Auto Loans

Want to buy a car or bike? You will probably want to take a car loan, which is actually an auto loan. The loan allows you to take possession of your vehicle after paying a small down payment, insurance and registration, and the vehicle is actually owned by the bank, till such time you pay off the loan fully. They come is variety of repayment periods, the most popular ones being from 3 years to 5 years repayment period. There are many small details you should check in a car loan or auto loan, to save money, and get the best deal out from them. Check our page on auto loans, to know more.

Credit Card Transfer Loans

You can transfer your existing balances on existing credit cards, to a new credit card, and get benefit of interest rates and save money in the process. With a bit of financial discipline, you can get over your credit card debts over a period of time as well. Learn how to avail it, and the best providers of credit card balance transfer loans here.

FHA Loan

FHA home loans are maximum beneficial to the lower income groups, or to those who have just started their professional careers, as these loans make it possible to own a house with very little down payment, which is otherwise not possible in a mortgage loan. Know all about FHA loans here.

Structured Settlement Loans

Have you won a lawsuit, and are entitled to payments in installments, over a period of time? Well, now you can get the entire amount at one go, and together, though for a price. These loans are not actually loans, but pay you one lump sum amount for your guaranteed future incomes as directed by the court. Know all about Structured Settlement Loans here, in this guide

Small Business Loans (SBAs)

Business loans are different from personal or home loans, as different parameters are taken into consideration. Apart from the financial health of the owners, the financial health and operations of the business is also taken into consideration. Your approach, before you go for such a loan is very important, and business loan makes a healthy component in your credit mix as well. Check out our guide on availing small business loans, its documentation, requirement, merits and demerits.

It's all a game of your credit score and credit history

You must have witnessed that some people get loans easier, and at better rates, than others. Well, apart from the documentation aspect, there is another major aspect. The credit scores. Check out our guide on credit scores, how to manage your credit scores and increase them, and how to maintain a good credit score.

Loan Calculators

Wondering what will be your loan repayment amount, the instalments and the EMIs, based on loan amount, or varying interest rates? Well, we have a variety of financial loan calculators here, which you can use, by inputting different values, and know what your financial burden will be like, for any loan you take. Click here for our loan calculators.

Loan type that you should strictly avoid: Payday Loans

By all means, avoid pay day loans. If you have already taken one, then take a debt consolidation loan or even a personal loan, and pay off your payday loan. They are supposed to be paid off in full, with very high rate of interest, by your next payday. High interest rate is charged as no credit score check or credit repayments records are checked. One renews the loan on non repayment at the next payday, paying the interest part only, and the vicious cycle continues. So immediately clear off all your payday loans, before you embark on a solid and prosperous financial journey.

Would you like to know which loan types have lower interest rates?

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