Bank Loans in India, its Interest Rates, and Charges

There are different kinds of loans available in India and all these loans are tailor-made to suit your needs. Whether you are buying a house or a car or you are going on a vacation, you will surely find a loan that is specially curated for all your requirements. You may have different loan offers on the table, but it is important to compare these loans in terms of interest rates and other fees and charges. Banks categorise loans based on the end use proceeds or the purpose of the loan. Hence, the terms and conditions of loans vary mainly due to the end use.

Type of Loans According to the Purpose

Personal loans – Personal loans can be used for any your needs like home improvement, marriage, vacation, and so on. Most credit card issuers will give you the option to apply for a personal loan against your available credit limit. This loan is processed online where you can select your preferred EMI amount and the tenor. Upon approval, a cheque will be delivered to your residential address. Note that the rate of interest is maximum for a personal loan.

Home loans – As the name suggests, this category of loan can be taken when you want to buy a property. The home loan rate of interest is minimum and has a longer duration of repayments.

Car loans – Most automobile companies are starting to venture into the finance world by setting up separate subsidiary companies, dedicated for this purpose. Hence, these companies offer the best interest rates, sometimes with 0% interest schemes. As a result, the subsidiary companies can undercut any finance terms of the banks by making higher profits on the vehicle.

Education loans – The interest rates for this kind of loan is very high like that of personal loans. But, the key part is that several banks will grant you a notice period before your repayment terms or EMIs begin. The notice period considers the duration of your course. This means that you will start paying EMIs only after you finish with your education and find a job.

Business loans – If you want to start your own business, then this loan is perfect for you. Numerous factors are taken into account before approving this category of loan. The interest rate is high due to the several risks involved.

Major Terms Used by Banks

Rate of interest – An interest rate is the amount of extra cash you need to pay over the loan tenure along with the principal amount. You must read the fine print for rates, fees, and charges which banks levy on the loan amount. All banks determine their lending rate based on the base rate, which is the minimum interest that a bank can charge.

Fixed rate loans – The interest is either fixed for the entire duration of the loan or for a certain period of the loan. If you have taken a pure fixed rate loan, then the interest rate on the instalment amount will remain the same throughout, regardless of whether the bank or RBI change their rates.

Floating rate loans – The interest rates changes according to the market conditions. The EMI of such a loan will revise with the banks’ and RBI mandated changes from time to time.

Penalty charges – If you do not pay your monthly dues on time or default, the bank has the right to levy a late payment fees or a penalty charge along with the interest on top of your next instalment amount.

CIBIL score – All banks will look at your credit or CIBIL score before approving your loan request. If you have a poor score, work on improving it before applying for a loan. You can check your credit score on the CIBIL website.