All You Should Know About Different Types of Loans

Secured versus unsecured and more...

Whenever you borrow a sum of money from any financial institution like a bank or any individual like a friend and intend to repay the same with interest in a given period is termed as Loan.

Loans play a very important role in an individual's financial journey, which can be borrowed for different purposes like

  • Higher education
  • Start-ups and expansion of existing business
  • Buying and renovations of a house
  • Purchasing a new vehicle, etc

Taking a loan may help you to fulfil your financial requirements and achieve your goals without any monetary hindrance.

Loans are classified under two broad categories:

  • Secured Loans
  • Unsecured Loans

Let's discuss each category in detail.


Secured loans are the loans which require a collateral i.e. they are backed by an asset like a home, factory, car, gold, etc. In order words, borrowers back their loan with an asset which is accepted by the lender, so that in case of default in repaying the loan amount the lender can sell the collateral to retrieve the loan amount.

Types of Secured Loans:

# Mortgage Loan:

To avail, the mortgage loan the borrower's asset acts as the collateral. Funds acquired from this loan can be used for different purposes such as buying or renovating the house etc. In case of payment default of the loan, the lender can use the collateral for the foreclosure to regain the loan amount.

# Home Loan:

Home Loan is a type of mortgage loan and here also the borrower's house acts as a collateral to borrow the loan amount. But home loans are pre-set in nature i.e the fund availed as loan can only be used for buying a property.

# Vehicle/Auto Loan:

Vehicle or auto loan is a type of secured loan which is sanctioned to an individual for buying a new vehicle. Here the individual's new vehicle bought itself acts as the collateral which can be used as equity in case of default in the payment of the loan.


If you need a loan to bridge the gap between your needs and monetary contingencies, and cannot back it up with any collateral or asset, then an unsecured loan is the best option for you.

Unsecured loans are sanctioned without a backup of any collateral or asset, only the borrower's creditworthiness matters. This loan can be used for different purposes like:

  • Planning a holiday with your family
  • Renovations and repairs of a house
  • Higher education
  • Unexpected medical contingencies
  • Buying a new vehicle, etc

The rate of interest on unsecured loans is higher compared to Secured loans because the borrower does not need to secure any of his assets like home, gold, etc. against this loan. The rate of interest on unsecured loans lies between the ranges of 5% to 36%.

Types of Unsecured Loan:

# Personal Loan:

Personal Loans are a type of unsecured loan in which the borrower does not require to back up his loan against any collateral or asset, also the borrower can use the loan amount flexibly for any purpose like buying a new car, gold, or vehicle, for renovation of a house or buying a new one, higher education, etc. This feature makes this type of loan the most marketable. Under this loan, the lender cannot claim to auction or sell the borrower's owns in case of a payment default.

The rate of interest on Personal Loans are comparatively higher than that of other types of loans because of perceived risks while sanctioning it.

# Education Loan:

Education loans can be of great help for the students who intend to pursue their higher studies in their own country or abroad. User this loan all expenses of the students right from their tuition fees, exam fees, books and other supplies including accommodation is covered.

The rate of interest on this may differ from one financial institution to another.

Education loan is offered for almost all the fields of high studies like engineering, PHD, management, medical, arts, etc.

Today, in the world of digital marketing the access to loans has become much easier and faster. You just need to get a clear picture and understand which type of loan is the most beneficial in satisfying your monetary requirements. The above discussion on different categories of loans can make your daunting task a bit easier. welcomes thoughtful comments and the varied opinions of our readers. We are in no way obligated to post or allow comments that our moderators deem inappropriate. We reserve the right to delete comments we perceive as profane, vulgar, threatening, offensive, racially-biased, homophobic, slanderous, hateful or just plain rude. Commenters may not attack or insult other commenters, readers or writers. Commenters who persist in posting inappropriate comments will be banned from commenting on