Different Types of Fund Based credit facilities (Loans)

 Different Types of Fund Based credit facilities (Loans)

1. Home Loan
2. Personal Loan
3. Vehicle/Auto/Two Wheeler/Car Loan
4. Gold Loan
5. Agriculture Loan
6. Consumer Loan
7. Educational Loan
8. Mortgage Loan
9. OD/SOD
10. CC/CCA/OCC
11. SME/MSME Loan
12. SHG
13. Loan against Fixed Deposit
14. Loan against Life Insurance
15. Govt Sponsored Loan (Like Mudra, Standup India etc)
16. Credit Card

There are more than a dozen different credit schemes in India. However, I am only going to name the popular ones. Before I start with the names, there are only two categories of loan schemes: Secured Loan and Unsecured Loan.

In the secured loan category, you have to mortgage any asset to avail a loan against it. The loan is offered against the mortgaged property. You can also refer to this type as mortgage loans.

• Home loan
• Loan against shares and securities
• Loan against property (includes all kinds of private, and commercial properties)
• Car loan.
• Secured Business loan

Apart from that, every unsecured loan has a secured version.

In the unsecured loan category, you don’t have to mortgage anything as collateral to avail a loan. The approval depends on the income, repayment capacity and the CIBIL score.

• Personal loan: home renovation loan, wedding loan, medical emergency loan etc.
• Unsecured business loan: MUDRA Loan etc.
• Education loan

I hope the answer satisfies your query.

Different Kinds of Loans against Property

A Loan Against Property (LAP) is a unique financial product offered by leading banks and non-banking finance companies (NBFCs) with the property as the collateral.
Since a property which is mortgaged for the loan against property (LAP), the same works as a security for the lenders and helps them to offer a lower interest rate.
However, when it comes to the application of a loan against property to any lender, you also need to know what types of loan against property you can avail of. In other words, you need to know what properties are eligible to apply for LAP. The Interest Rates of Loan Against Property is quite low, thus fulfilling the best option one can get. Let’s discuss the loan against property types that are eligible for mortgage purposes.

Loan Against Property is provided for these Properties

> Registered Properties with a Map

A property which is registered with proper maps and clear sanction plan by the local town/city/municipality authorities is one of the best mortgages in the finance industry. All leading banks and non-banking finance companies (NBFCs) provide a hassle-free loan against property for this type of property profile. The legal title of the property is a clear and best bet along with the local authorities’ sanction plan to offer you an affordable LAP.

> Registered Properties without a Map

The next property types are the ones those are registered properties without maps. While processing the loan against property for such properties, banks and NBFCs look for risk mitigation factors such as ATS and a proper sale deed/agreement. These properties come with a direct risk of having no clear plan by local authorities. Thus, if you are willing to get a loan against property, you will need to provide some sort of convincing to your prospective lender in the form of co-applicants or extra income.

> GPA

GPA stands for General Power of Attorney. GPA is a legal instrument that offers a person with an authority to act on the behalf of another person. GPA does not give any ownership of an immovable property to a person being offered the authority. Thus, banks and NBFCs don’t offer a loan as GPA holder does not have any legal ownership over the GPA property. If you really want to avail a loan against property (LAP), in this case, you may contact some Housing Finance Companies (HFCs) that approves an amount to a GPA holder. You can also count on external financiers, but they may charge you a higher rate of interest which may cough up your income.

Additional Read: Different Types of Loan Against Property

> Lal Dora land

Lal Dora villages are a part of Delhi property scene and there are around 360 villages under the Delhi Lal Dora. These are such areas that are left for residential or livestock purposes. Generally, no banks or NBFCs would lend money for such properties.

> Agricultural Land

Agricultural land is for agricultural purposes and you can’t get a loan against such properties. There are certain restrictions on them, and it’s not easy to convert them into a non-agricultural land. Also, banks and other financiers don’t lend for a property which is above the 3rd floor of a building or an empty plot.
You can avail a loan against property only for the following properties such as:

• Self-owned residential property
• Self-owned and self-occupied residential property
• Self-owned cum rented residential property
• A piece of land that’s self-owned
• Commercial properties that are self-owned
• Rented commercial properties that are self-owned

The Bottom Line
Thus, availing a loan against property (LAP) can easily let you have a higher amount at a lower rate, all that you need to know is – the type of properties that are eligible. You are now aware of the properties that are eligible for the loan against properties to lenders.

There are several types of loans through which you can borrow money from banks and financial institutions. These can be broadly classified into secured and unsecured loans.

However, before defining these, let’s understand loans in general.

Loan is a sum of money borrowed from a bank or a financial institution by an individual or a company, repayable along with an interest within a given period of time.

Let’s see the categories in which you can avail these loans:

1. Secured Loans:

Secured loans are borrowings from banks and financial institutions against which a security or asset is pledged as a collateral. If the borrower defaults in repayment, the banks or financial institutions have the liberty to sell or auction the security and secure the loan.

1. Unsecured Loans
   Unsecured loans on the other hand do not have any security attached and thus repayment of that loan, upon default, has to be secured through recovery agents.

As there is no security pledged as a collateral, unsecured loans generally have a higher interest rate as against secured loans.

Now, secured and unsecured loans are further classified on the basis of the purpose of availing these loans.

Secured loans can be put into the following buckets:

1. Home Loans
1. Land purchase loans
2. Home construction loans
3. Home loan balance transfer
4. Top up loans
2. Loans against property: which are generally availed for business expansions and product development. Banks allow upto 50-80% of the value of property as loan amount.
3. Loans against insurance policies: Loans can be availed against insurance policies like endowment and money back policies, which have a date of maturity.
4. Gold loans: which are generally short term loans.
5. Loan on investments: are loans against equity or hybrid mutual funds and shares, wherein a lien is attached to the investments. These loans create a line of credit for the borrowers who can utilize these loans and pay interest on the time and amount of loan utilized. There are no fixed EMI or prepayment charges on these loans.
6. Loan on fixed deposit: wherein banks grant 70-90% of the value of loans.

Unsecured loans can be categorized as:

1. Personal Loans: which can be availed if the borrower has a good credit score or a high income.
2. Short term business loans: which can be availed as working capital loans, machinery and equipment loans, loans for women entrepreneurs etc.
3. Flexi loans: which again have a line of credit, which can be withdrawn and prepaid without any prepayment charges.
4. Education loans: which provide the freedom of repayment after one year of completing the education.
5. Vehicle loans: wherein vehicles are hypothecated until repayment of the loan amount.

The purpose of these loans are quite apparent. Thus, I will not go into explaining them.

But which loan should you opt for in times of emergency?

When an emergency arises, we need loans at an instant and without much hassles. The most convenient scenario is to have a line of credit in place to handle such emergencies. Loan on investments can give you this liberty. If you have good investments, and you require liquidity, you can start a line of credit on those investments today.

The bank will set up a line of credit for you, from which you can utilize the required funds. The advantages of this line of credit through loan on investment is:

1. There is no fixed EMI.
2. There are no prepayment penalties.
3. The rate of interest can go as low as 7.5% p.a.
4. You only need to pay interest on the fund utilized.
5. Pay interest for the amount of time that the fund was utilized.

Different categories of loans provided by banks

•Introduction:

•Banking has been defined in Banking Regulation act 1949 as acceptance of deposits from the public for the purpose of lending and investment in securities

•Banks provide loans for various purposes

•The loans are generally classified into fund based facilities and non fund based facilities

•Fund based facilities are further classified into working capital limits and term loans

•Fund based limits:

•

•Depending upon the nature of activity undertaken by the borrower, the loans are classified into priority sector loans and non priority sector loans

•Loans provided to the following are classified as priority sector loans: Retail traders, Professional and self employed persons, Small business enterprises, Education loans, housing loans upto certain limits, small scale enterprises, agriculture, self help groups etc.,

•Loans provided to others are classified as non priority sector loans

•In the case of priority sector loans banks normally charge lesser rate of interest

•Non fund based limits:

•These loans are contingent liabilities

•Guarantees provided, letter of credits issued and bills for collection are known as fund based limits

•In the case of failure of the borrower to honor his commitments, once demanded by the beneficiaries, the non fund based limits are converted into fund based limits and the claims are settled.

•How to apply for a loan with any bank?

•The intending borrower has to identity the bank and the branch from which he is willing to avail the loan

•In the case of business loans, he should prepare a detailed business plan in respect of his business activity

•He should meet the branch manager/manager in charge of credit along with the following documents:

•Two passport size photographs

•Detailed business plan in respect of business activity

•Estimate of expenses in respect of educational loans and housing loans

•Copies of documents for address proof

•Copies of documents for identity proof

•The balance sheet and profit and loss account in respect of last two to three years along with copies of income tax returns submitted for last three years for business loans

•The loan will be sanctioned by the bank once the bank is satisfied with the requirements of the intending borrower

•Types of loans:

•Fund based loans are provided in the form of term loans, overdraft limits, cash credit limits and bills discounting facilities

•Term loans are provided for the purpose of acquiring fixed assets required for the business units

•Working capital limits are provided for the purpose of meeting the working capital gap

•Working capital limits are provided in the form of overdraft facilities and cash credit facilities

•They are running accounts provided as credit limits over and above the balance held in current account of the borrower

•Working capital loans provided without insistence of any security are called as overdraft limits

•Working capital loans provided against the stock of goods are known as cash credit facilities

•Borrowers can also avail loans against book debts

•Unrealised sales are known as book debts

•Banks provide loans against book debts owed by trustworthy customers of the borrowers by keeping higher margin than any other loans

•On realisation of the book debts, the loans provided against such debts are cleared through the money received from the customers.

•Term loans:

•Term loans are provided by the banks for acquiring machineries required for the unit for the purpose of conducting business activity

•For example – in the case of restaurant activity, the borrower may be in need of airconditioners, grinders, tables, chairs, cooking stoves, vessels etc. and in order to purchase the above items, banks provide term loans

•The borrower has to meet the cost of machineries upto certain percentage and it is called as margin.

•The balance amount after deducting the margin amount to be borne by the borrower from the total value of machineries is provided in the form of term loan

•The borrower has to repay the loan in monthly instalments and the term loans provided for a period upto 48/60/84 months

•Apart from payment of principal, the borrower has also to pay the interest as and when due

•The borrower can opt for equated monthly instalment method by which he can pay equal amount consisting of principal and interest

•On account of opting for EMI facility, the financial burden of the borrower at the initial stage is reduced to a great extent.

•The rate of interest is fixed by the bank as applicable to the category of the borrower

•The assets purchased out of loan proceeds should be adequately insured

•The borrower has to pay the processing charges, commitment charges etc., as per the rules prescribed by the bank.

•Cash Credit Limits:

•Cash credit limits are provided to the borrowers for undertaking any productive activity

•For example: a borrower who has undertaken the business of restaurant activities may require machineries and other consumables

•Machineries are procured by availing term loans from the bank

•In the case of consumables which are required for utilisation on daily basis, the working capital needs of the borrower to meet the above expenses are provided by means of cash credit limits by the banks.

•For the purpose of expenditure to be incurred by the borrower for consumables namely; payment of rent, electricity charges, cost of raw materials required for the unit, conveyance expenses, travelling expenses, staff welfare and customer welfare expenses etc., the borrower avails cash credit limits from the bank depending upon the gap in working capital

•This loan is provided by means of cash credit limit over and above the own funds held by the borrower in his current account with the bank.

•The stock of goods in the form of raw materials, work-in process and finished goods available with the borrower shall be taken as securities for the cash credit limit

•The borrower has to repay the interest as and when due to the bank in respect of cash credit loan availed from the bank

•Other requirements:

•In the case of cash credit limits, the borrower has to submit stock statements as stipulated by the bank

•Cash credit limits are normally sanctioned for one or two years

•On expiry of the period, the borrower has to submit renewal application along with the copies of income tax returns to the bank renewal of limits for one more term.

•Banks stipulate third party guarantee or collateral securities in addition to the securities available by creation of term loan or working capital limits.

•In the case of limits sanctioned under CGTMSE scheme, no collateral securities or third party guarantees are stipulated by the banks.