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In summary
India's loan market is split into two categories: secured loans (backed by collateral) and unsecured loans (no collateral needed). Knowing which type fits your need helps you borrow at the right cost.
- Secured loans: Home loans, gold loans, loan against property (LAP), loans against FD, mutual funds, shares, insurance policies, and vehicle loans
- Unsecured loans: Personal loans, short-term business loans, education loans, and credit cards
- Secured loans carry lower interest rates; unsecured loans are approved faster with minimal documents
- LAP disburses up to 80% of your property's value; loans against FD up to 90% of the FD amount
- A Flexi loan lets you withdraw from your approved limit and pay interest only on what you withdraw
What is a loan?
A loan is a credit agreement between you and a lender — typically a bank or NBFC — where you borrow a fixed amount and repay it over an agreed period with interest. The lender sets the interest rate, repayment tenure, and associated charges upfront.
When you need funds — for a home, a wedding, a business expansion, or an emergency — the loan type you choose determines both the cost and the speed of access. India's lending ecosystem has evolved to cover nearly every financial need, whether or not you have an asset to pledge. If you need funds quickly and without collateral, you can consider a personal loan.
✅ Check your pre-approved personal loan offer with phone number and OTP → Apply online in 5 minutes → Receive funds within a day*.
What are the different types of loans available in India?
Loans are classified into two factors based on the purpose that they are used for: secured loans and unsecured loans.
| Category | Collateral required | Typical use case |
| Secured loans | Yes — asset pledged | Home purchase, property-backed funding, vehicle |
| Unsecured loans | No — based on credit profile | Personal expenses, education, business working capital |
What are secured loans?
Secured loans require you to pledge an asset — property, gold, shares, or insurance policy — as collateral. If you default, the lender has the right to seize the pledged asset. Because the lender's risk is lower, interest rates on secured loans are generally lower than on unsecured loans.
What are unsecured loans?
Unsecured loans do not require any collateral. The lender assesses your creditworthiness based on your credit score, repayment history, and income stability. Since the lender bears higher risk, unsecured loans carry higher interest rates than secured ones.
What are the types of secured loans?
1. Home Loan
Home loans are a secured mode of finance that gives you the funds to buy or build the home of your choice. You can apply online for a home loan at lower interest rates. The following are the types of home loans available in India:
- Land purchase loan: To purchase land for your new home
- Home construction loan: To build a new home
- Home loan balance transfer: Transfer the balance of your existing home loan at a lower interest rate
Top up loan: Can be used to renovate an existing home or have the latest interiors for your new home
Note that whilst buying a new property/home, the lender requires you to make a down payment of at least 10-20% of the property's value. The rest is financed. The loan amount disbursed depends on your income, its stability, and current liabilities, among others.
2. Loan Against Property (LAP)
A loan against property is one of the most common forms of a secured loan. You can pledge any residential, commercial, or industrial property to avail of the funds required. The loan amount disbursed is equivalent to a certain percentage of the property's value and varies across lenders.
Whilst some lenders may offer an amount equivalent to 50-60% of the property's value, others may offer an amount close to 80%. A loan against property helps you unlock the dormant value of your asset and can be used to satiate personal life goals such as higher education for children or marriage. Businesses use a loan against property for business expansion, R&D and product development, among others.
3. Loans Against Insurance Policies
Yes, you can also avail of loans against your insurance policy. However, note that all insurance policies do not qualify for this. Only policies such as endowment and money-back policies, which have a maturity value, can avail of loans.
Thus, you cannot avail of a loan against a term insurance plan as it does not have any maturity benefits. Also, loans cannot be availed against unit-linked plans as the returns are not fixed and depend on the market's performance. You can opt for a loan against endowment and money-back policies only after they have acquired a surrender value, which typically happens after paying regular premiums continuously for three years.
4. Gold Loans
A gold loan requires you to pledge gold jewellery or coins as collateral. The loan amount sanctioned is a certain percentage of the gold's value pledged. Gold loans are generally used for short-term needs and have a short repayment tenure compared to home loans and loans against property.
According to a PwC India report, cited by IBEF, India's organised gold loan market is projected to double over the next five years, reaching Rs. 14.19 lakh crore (US$169.07 billion), growing at a CAGR of 14.85%. The market was valued at approximately Rs. 7.1 lakh crore in FY2023–24.
5. Loans Against Mutual Funds and Shares
Mutual funds can also be pledged as collateral for a loan, an ideal vehicle for long-term wealth creation. You can pledge equity or hybrid funds to the financial institution for availing of a loan. For doing so, you need to write to your financier and execute a loan agreement.
Your financier will then write to the mutual fund registrar and put a lien on the specific number of units to be pledged. Typically, you can get 60-70% of the value of units pledged as a loan. Similarly, financial institutions create a lien against shares for which the loan is taken, and the loan value is equivalent to a percentage of the value of the shares.
6. Loans Against Fixed Deposits
A fixed deposit not only offers assured returns but can also come in handy when you need a loan. The loan amount can vary between 70-90% of the FD's value and varies across lenders.
However, it is essential to note that the loan tenure cannot be more than the FD's tenure. This makes it an excellent option for accessing funds without breaking your investment.
Additional Read: What is the annual percentage rate (APR)
7. Vehicle Loans
Vehicle loans are designed for purchasing cars, bikes, or commercial vehicles. The vehicle itself serves as collateral, making this a secured loan. Borrowers enjoy flexible tenures and competitive interest rates, depending on their credit score and loan terms.
8. Loan Against Securities
A loan against securities allows borrowers to pledge investments such as shares, mutual funds, or fixed deposits as collateral. This enables access to funds without liquidating assets. Interest rates are usually lower, and repayment terms are flexible.
What are the types of unsecured loans?
1. Personal loan
A personal loan is one of the most popular types of unsecured loans that offer instant liquidity. However, since a personal loan is an unsecured mode of finance, the interest rates are higher than secured loans. A good credit score and high and stable income ensure you can avail of this loan at a competitive personal loan interest rate.
The money obtained from this loan can be used for any immediate or unexpected purposes. You must pay it back according to the terms set forth by the lender, just like any other loan. Applying for a personal loan from Bajaj Finance is simple and easy and it requires minimal paperwork.
Check your eligibility for personal loan using just mobile number and OTP – 100% online process.
Common uses of a personal loan:
- Cover wedding expenses
- Fund an international trip
- Finance home renovation
- Pay for a child's higher education abroad
- Consolidate multiple debts into a single EMI
- Handle unexpected or urgent expenses
2. Short-term business loans:
These are unsecured credit facilities for organisations and entities that need working capital or short-term operational funding.
| Loan Type | Target Borrower |
|---|---|
| Working capital loan | Businesses managing day-to-day operations |
| Machinery loan / equipment finance | Manufacturers needing plant upgrades |
| Small business loan (MSME) | Micro, small, and medium enterprises |
| Loans for women entrepreneurs | Women-led businesses |
| Loans for traders | Retail and wholesale traders |
| Loans for service enterprises | Service-sector businesses |
3. Education loans
Education loans provide financial assistance for higher studies, covering tuition fees, accommodation, and related expenses. These loans are offered with flexible repayment options and moratorium periods to support students during their education. Many banks and NBFCs offer education loans with competitive rates and manageable repayment schedules.
4. Credit Cards
Credit cards offer a revolving line of credit for various expenses, from daily purchases to emergencies. They are unsecured and come with a fixed credit limit and interest rates. Responsible usage helps build credit scores and provides convenient access to short-term credit.
Secured vs. unsecured loans - Comparison
Secured and unsecured loans differ mainly in collateral requirements, borrowing costs, and approval processes.
| Feature | Secured Loans | Unsecured Loans |
|---|---|---|
| Collateral Required | Yes, mandatory | No, not required |
| Interest Rates | Lower | Higher |
| Loan Amount | Higher, based on asset value | Lower, based on credit profile |
| Approval Time | Longer (property valuation needed) | Faster (5 minutes to few hours) |
| Documentation | Extensive (property papers, etc.) | Minimal (basic documents) |
| Risk to Borrower | Asset seizure if default occurs | Credit score damage, legal repurcussions if default |
| Best For | Large amounts (homes, vehicles) | Quick funds for various needs |
Which type of loan is the cheapest?
The cost of a loan can vary based on factors such as your credit score, income, and overall eligibility. Among the different types of loans, secured loans are usually more affordable since they are backed by collateral and come with lower interest rates. In contrast, unsecured loan types generally carry higher rates due to the absence of collateral.
However, when applying for a personal loan, borrowers should look beyond just the interest rate. It's important to also consider aspects such as:
- The approval process and speed
- Documentation requirements
- Stamp duty and registration costs
- Other associated charges (processing fees, prepayment penalties)
- Flexibility in repayment options
To make a well-informed financial decision, evaluate the total cost of borrowing rather than just the interest rate.
Example of choosing the right loan type
Scenario: Imagine a person - Priya, 34, salaried software engineer in Hyderabad. Monthly income: Rs. 85,000. She needs Rs. 5 lakh urgently to fund her sister's wedding in 45 days. She owns gold jewellery worth Rs. 3 lakh and has a fixed deposit of Rs. 4 lakh with 18 months remaining.
She has three realistic options:
| Option | Loan type | Max amount available | Key condition | Approximate speed |
|---|---|---|---|---|
| A | Gold loan | ~Rs. 2.1–2.4 lakh (70–80% of Rs. 3L gold) | Gold must be pledged physically | Same day |
| B | Loan against FD | ~Rs. 2.8–3.6 lakh (70–90% of Rs. 4L FD) | Loan tenure ≤ FD remaining tenure (18 months) | 1–2 days |
| C | Personal loan | Up to Rs. 5 lakh (based on income and credit score) | No collateral; approval based on CIBIL score | Within 24 hours* |
What this means for Priya:
Options A and B together could cover Rs. 5 lakh, but she would need to manage two loan accounts simultaneously. Option C covers the full amount in a single disbursement with no asset at risk — but will carry a higher interest rate than A or B.
If Priya has a strong credit score and stable income, a personal loan is likely the most practical choice: one loan, one EMI, no asset pledged, funds within a day. If her credit score is below 650, she may need to combine the gold loan and the FD loan to raise the required amount.
Key takeaway: The cheapest loan by interest rate is not always the most practical. Match the loan type to the amount you need, the assets you have, and the time you have available.
What are Flexi Loans?
Innovative loan option: With a Flexi loan, you can avail of funds from your approved limit and withdraw the amount whenever required, paying interest only on the amount you have withdrawn.
You can withdraw on your loan limit any number of times and part-prepay when you have extra cash at no additional cost. Such a unique facility gives you the freedom to fully control your finances, unlike Term Loans.
Key benefits of Flexi Loans:
- Interest charged only on withdrawn amount
- Multiple withdrawals without additional fees
- Part-prepayment without penalties
- Flexible EMI options
- Day-wise interest calculation
- Complete financial control
Which loans come with the lowest interest rates?
Secured loans are generally cheaper because the lender's risk is offset by the pledged collateral. Among all secured loan types, loans against fixed deposits and loans against mutual funds or shares typically carry the lowest interest rates, since the collateral is liquid and easily valued. Unsecured loans carry higher rates since the lender relies entirely on your creditworthiness.
Loan types ranked broadly by interest rate (low to high):
| Loan type | Why rates are lower or higher |
|---|---|
| Loan against FD | Collateral is cash — lowest lender risk |
| Loan against mutual funds / shares | Liquid collateral; rate depends on market value |
| Gold loan | Easily valued collateral; short tenure keeps risk low |
| Loan against property (LAP) | High-value asset but longer valuation process |
| Home loan | Long tenure; government-linked rates apply in some schemes |
| Vehicle loan | Vehicle depreciates; moderate rate |
| Education loan | Partially secured or unsecured; moratorium adds risk |
| Personal loan | No collateral; rate based entirely on credit profile |
| Credit card | Revolving credit; highest effective rate if balance carried forward |
*This is an approximate comparison, the interest rates will vary from lender to lender.
However, the interest rate alone should not determine your decision. Before applying, evaluate:
- The approval speed and process
- Documentation requirements
- Stamp duty and registration costs
- Processing fees and prepayment penalties, along with other charges
Repayment flexibility
Important: A lower rate on a secured loan may come with higher upfront costs (valuation fees, stamp duty) that offset the savings. Always calculate the total cost of borrowing — not just the headline rate.
Risk note: If you default on a secured loan, the lender has the right to seize and sell the pledged asset to recover outstanding dues. Before pledging a high-value asset such as your home, assess your repayment capacity over the full loan tenure. If your income is variable or your employment is uncertain, an unsecured loan with a shorter tenure may carry lower overall risk to you.
Which loan type is best for covering medical emergencies in India?
For a medical emergency, speed and access matter more than interest rate. A personal loan is the most practical option for most borrowers: no collateral is required, approval can happen within hours, and funds are disbursed within 24 hours* of document verification.
If you hold a fixed deposit, a loan against FD is faster to process and carries a lower rate — but the amount is capped at 70–90% of your FD value. If that amount is insufficient, a personal loan covers the gap without requiring you to liquidate any investment.
Medical emergency loan — quick comparison:
| Loan type | Speed | Collateral needed | Best if you have |
|---|---|---|---|
| Personal loan | Within 24 hours* | No | Stable income, good credit score |
| Gold loan | Same day | Gold jewellery/coins | Physical gold at home |
| Loan against FD | 1–2 days | Fixed deposit | Existing FD with sufficient balance |
| Loan against insurance | 2–5 days | Endowment/money-back policy | Policy with surrender value (3+ years old) |
Who should avoid a personal loan for medical emergencies: If your credit score is low or your income is irregular, approval may be delayed or declined. In that case, a gold loan is the most accessible alternative — it does not depend on credit history and can be disbursed the same day.
Which loan type is easiest to foreclose early in India?
In India, the easiest loan type to foreclose early is generally a personal loan, especially when offered with flexible prepayment or foreclosure terms. Many banks and NBFCs allow borrowers to close their personal loans before the end of the tenure after a minimum lock-in period, although some lenders may charge a foreclosure fee.
Pro-tip: In the case of Bajaj Finance Personal Loan, you can choose the Flexi variant. In this loan type, you get a set limit from which you can withdraw. And the best part - no part-prepayment charges.
Gold loans are also relatively simple to foreclose because they are secured against pledged gold and usually have shorter tenures. Home loans and business loans can involve more documentation and may have specific prepayment conditions, depending on the lender and the interest rate structure.
| Loan type | Ease of early foreclosure | Typical considerations |
|---|---|---|
| Personal loan | High | May have a lock-in period and foreclosure charges, depending on the lender |
| Gold loan | Very high | Usually shorter tenure and simpler closure process |
| Home loan | Moderate | Rules vary based on loan type and lender policies |
| Business loan | Moderate to low | May involve additional documentation and prepayment conditions |
| Vehicle loan | Moderate | Foreclosure charges and minimum repayment periods may apply |
Before choosing any loan, you should compare foreclosure charges, lock-in periods, and prepayment policies. A loan with lower or no foreclosure fees can help reduce the overall interest burden and improve financial flexibility.
What is the most affordable loan option for a first-time borrower in India?
A first-time borrower typically has a limited credit history, which affects both approval odds and the rate offered. "Most affordable" for a first-time borrower means the option with the lowest total cost given their specific profile — not necessarily the lowest advertised rate.
First-time borrower options, ranked by accessibility:
| Loan type | Credit history needed | Collateral | Why it works for first-timers |
|---|---|---|---|
| Loan against FD | Not required | Fixed deposit | Lender's risk is fully covered by the FD; credit history is irrelevant |
| Gold loan | Not required | Gold | Approved based on gold value alone; no credit score check |
| Education loan | Limited history may be accepted | Sometimes required for large amounts | Lenders factor in course and institution, not just borrower profile |
| Personal loan | Good credit score needed | None | Accessible if you have stable salaried income and a CIBIL score of 650+ |
For a first-time borrower with no credit history: A loan against FD is the most affordable entry point. The interest rate is low, approval is near-certain (since the FD is the collateral), and timely repayment helps build a credit record for future borrowing.
For a first-time borrower with a salary but no assets: A personal loan is accessible if your income meets the lender's minimum threshold and your CIBIL score is 650 or above. Starting with a smaller loan amount and repaying on schedule builds your credit profile for larger loans later.
Key offerings: 3 loan types
Personal loan interest rate and applicable charges
Type of fee | Applicable charges |
Rate of interest per annum | 10% to 30% p.a. |
Processing fees | Up to 3.93% of the loan amount (inclusive of applicable taxes). |
Flexi Facility Charge | Term Loan – Not applicable Flexi Loans –Up To Rs 1,999 To Up To Rs 18,999/- (Inclusive Of Applicable Taxes) |
Bounce charges | Rs. 700 to Rs. 1,200/- per bounce “Bounce charges” shall mean charges for (i) dishonor of any payment instrument; or (ii) non-payment of instalment (s) on their respective due dates due to dishonor of payment mandate or non-registration of the payment mandate or any other reason. |
Part-prepayment charges | Full Pre-payment:
Part Pre-payment
|
Penal charge | Delay in payment of instalment(s) shall attract Penal Charge at the rate of up to 36% per annum per instalment from the respective due date until the date of receipt of the full instalment(s) amount. |
Stamp duty (as per respective state) | Payable as per state laws and deducted upfront from loan amount. |
Annual maintenance charges | Term Loan: Not applicable Flexi Term (Dropline) Loan: Up to 0.295% (Inclusive of applicable taxes) of the Dropline limit (as per the repayment schedule) on the date of levy of such charges.
Up to 0.472% (Inclusive Of Applicable Taxes) Of The Dropline Limit During Initial Tenure. Up to 0.295% (Inclusive Of Applicable Taxes) Of Dropline Limit During Subsequent Tenure |
| Credit guarantee scheme fee | Up to 1.18% p.a. (pro-rated daily till 31st March) (inclusive of all applicable taxes) of the loan amount |
| Credit guarantee scheme renewal fee | Up to 1.18% p.a. (inclusive of all applicable taxes) on the outstanding loan amount as on April 01 of the subsequent Financial Year. *Renewal Fee to be collected only for 3 subsequent financial years. **If the Remaining Tenure is less than 12 months, the CG Fee in subsequent years shall be charged prorated. |
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