The Most Popular Loan Products In India

Introduction

There are 93 commercial banks in India and each of them has their own set of loans – be it Home Loan, Personal Loan, Car Loan, Education Loan or any other loan such as a Gold Loan. In this case study, we have tried to document some of the best loan products currently available in our country. However, it is not possible to document all loan products here and we’d advise you, the reader, to do your own research before opting for any loan.

It is important to thoroughly read through the loan schemes before you decide to apply for a loan. Terms and conditions regarding foreclosure, part-payment, interest-rate calculation and installments are very important.

We have covered:

• Home Loan
• Personal Loan
• Education Loan

Read on to find out which are the best loan products in India.

Home Loans

• SBI FlexiPay Home Loan – This loan is specifically designed by the State Bank of India (SBI) for young working professionals. Under the scheme, borrowers can pay only the interest component in the initial years. This will help increase your eligibility for the loan amount by close to 20%. For instance, if you take a Rs. 30 lakh loan for 15 years, your Equated Monthly Instalments (EMI) work out to Rs. 24,000 under this scheme. The same loan under a normal Home-Loan scheme would be Rs. 31,300. This EMI difference means that you could take an additional loan of about Rs. 6 lakh.However, SBI requires you to ensure that you have enough cash resources to meet the down payment for the additional loan sanction. This is because regulations state that banks can fund only 75%-90% of the property value. The rest has to be funded by the buyer of the property. The bank will request you to raise the EMI in case there are any hikes in the interest rate so that the principal liability remains intact. The period during which you need to pay only the interest will be about 3-5 years. The upper age limit for the scheme is 45 years. You could repay the loan in as much as 30 years.
• Loan highlights
  • Higher loan amount
  • Lower EMIs initially
  • Higher tenure

• ICICI Bank Extraa Home Loan – This loan has been designed by ICICI Bank for those who may fall short of loan eligibility or cash given that Home Loan tenures are linked to your retirement age. This loan allows you to extend your repayment period until you reach 67 years of age. This means that your retirement age is assumed to be 67 years. With a normal Home Loan, this age limit is 60 years. Using this loan, you could also enhance the amount of loan granted by the bank by up to 20%. However, such an enhancement will have to be backed by mortgage guarantee, which is something that protects lending institutions or housing finance companies against losses incurred when a borrower defaults on a Home Loan.ICICI Bank allows this loan to be availed by borrowers who are either salaried or self-employed. This loan might be best for those who are close to retirement and are finding it difficult to get loan tenures extended. For instance, suppose you are 47 years old and require a loan of Rs.39 lakh, the tenure for a normal loan will be only 13 years (that is until you are 60). With the ICICI Bank Extraa Home Loan, your tenure becomes 20 years and you can avail Rs. 6 lakh more given the increase in tenure. This is useful if you are in the middle of your career and are short of funds because you have too many goals to achieve. For instance, say you are 37 years old and need a loan of Rs. 35 lakh. But you are eligible for only Rs. 26 lakh. With the ICICI Bank Extraa Home Loan, you get the amount that you need and the tenure of the loan is extended. The EMI remains the same. This loan product is being offered in partnership with Indian Mortgage Guarantee Corporation (IMGC). Note that currently the bank offers this loan only in Mumbai, Delhi, Bengaluru and Surat.
• Loan highlights
  • Higher loan eligibility
  • Higher tenure
  • Same EMI

• Axis Bank Super-Saver Home Loan – This Home Loan by Axis Bank seeks to reduce the interest burden on the borrower. The loan account here is known as the Super Saver account. Under this scheme, you can make deposits to the Super Saver account after the total loan has been disbursed. Any deposits will be used to reduce the principal outstanding in order to calculate the interest on your loan. So, essentially the interest is calculated on the principal outstanding minus the deposit amount.For instance, if your principal outstanding is Rs. 50 lakh and you deposit Rs. 5 lakh in the account, your home loan interest is calculated only on Rs. 45 lakh which is 50 minus 5.The best part is that you can withdraw from this deposit if you require funds. It is pretty obvious that instead of paying you the interest on the deposit, the bank sets it off against the interest due on your home loan. However, note that you save interest on your Home Loan and take back the funds when you need them. This is an ideal way to reduce your EMI burden at least in the initial years of your Home Loan.In the first couple of years of your loan tenure, the interest amount makes up most of your EMI. The principal part is generally miniscule initially and goes up as you repay your loan over the years. The Super Saver Home Loan has a tenure of 20 years with a floating interest rate. However, note that the minimum loan amount needs to be Rs. 1 crore. The additional benefit on this loan is that there are no prepayment charges. So, you can freely prepay your loan whenever and with whatever amount that you want.
• Loan highlights
  • Lower interest payments
  • No prepayment charges
  • Floating interest rate

• Aditya Birla Housing Finance True Worth Home Loan – This is a unique loan scheme by Aditya Birla Finance wherein the firm takes into account other sources of income while deciding your loan eligibility. Generally financial institutions take into account only documented income such as salary or receipts from sale of goods or services. Here, Aditya Birla is willing to consider other sources of income that you might use to repay your loan.For instance, suppose you want to buy a second home and need a loan for this. Your first home is in a suburb and you have rented it out. Aditya Birla takes into the account the rental income from the property and the value of that property to decide your loan eligibility. This way, your eligibility will be much higher compared to your eligibility for a regular Home Loan.Let’s explain this with an example. Suppose your monthly salary is Rs. 90,000 with loan liabilities of Rs. 35,000. Under a regular Home Loan scheme, you are eligible for a loan of only Rs. 26 lakh. However, if your rental income from your first property, say Rs. 15,000 per month, is taken into account, your eligibility goes up to Rs. 29 lakh.Aditya Birla offers Home Loans with tenure of up to 30 years for salaried individuals and 20 years for self-employed. The repayments could be in the form of simple EMIs or structured payments as decided by you. The firm charges zero prepayment fees for those who opt for floating-rate loans. The minimum loan amount has to be Rs. 25 lakh. The smaller the loan amount, the higher would be the payment (that is, lower would be the down payment). For instance, for loans of up to Rs. 30 lakh, up to 90% of the property value will be funded. For loans between Rs. 30 lakh and Rs. 75 lakh, this would be 80%.

• Loan highlights
  • Higher loan eligibility
  • Lower down-payment for small loans
  • Floating interest rate

• LIC Housing Finance Home Loan For Pensioners – This loan is meant for pensioners who have crossed the age of 50 years. You can take this loan before as well as after retirement. So essentially, you can avail the loan even before you retire and start receiving your pension. This loan can be used for purchase, construction and extension of a house or flat. Land and other properties are not included under the scheme.The tenure of the loan is 15 years or until the borrower reaches 70 years of age, whichever is earlier. In case you avail the loan before you retire, you need to give an undertaking letter stating that at least 30% of your loan will be repaid from the proceeds of your retirement benefits and the balance from your pension income. If you want to avail this loan after retirement, you need to provide a guarantor for the loan.

• Loan highlights
  • Exclusively for pensioners
  • Lower down payment for small loans
  • Floating interest rate

• HDFC Reach Home Loan – This loan is specifically designed by HDFC for the lower-income segment. For salaried individuals, the minimum income needs to be just Rs. 10,000 per month to be eligible for the loan. For the self-employed, this needs to be Rs. 2,00,000 per annum. Loans up to Rs.35 lakh are disbursed under the scheme.You can avail loans for the purchase of a new home, constructing a new home, extending your home, and also for the purchase of non-residential premises. For residential property, you can get 80% funding, while for non-residential, this is restricted to 60%. HDFC also provides you with legal and technical expertise, if needed, to help you choose the right property. The maximum tenure of the loan is 20 years. Both fixed and floating interest rates are available.

• Loan highlights
  • Exclusively for low-income individuals
  • Both Fixed and Floating rate available
  • Loans for non-residential property available

• PNB Unnati Home Loans – This Home-Loan scheme launched by PNB Housing Finance targets people who are looking for affordable housing. People whose income starts at Rs. 10,000 per month can apply for the loan. The maximum loan tenure is fixed at a good 30 years, making your EMI pretty low when compared to loans that have a maximum tenure of 20 years. The maximum loan amount is Rs. 25 lakh.The firm offers both fixed and floating rates of interest. Fixed rate can be availed for 3, 5 or 10 years. Currently, the interest rates start at 10.5% per annum. The best part is that PNB Housing allows you to take a loan based on the combined income of both you and your spouse. Also, the bank funds up to 90% of your property’s value. The firm also has tie-ups with insurance firms to provide you with insurance along with your Home Loan.

• Loan highlights
  • Minimal eligibility criteria
  • Both Fixed and Floating rate available
  • Funding up to 90% of property value

Personal Loans

1. HDFC Bank Diva – This is specifically designed for women borrowers. The loan offers special privileges to its borrowers which can be availed after the loan is sanctioned. These include online offers, products, gift vouchers and mobile coupons. The bank is currently offering over a 100 products under this scheme. For instance, you can get Rs. 500 off at Jabong.com, 12% off on Sia jewellery and 10% off at pepperfry.com.The bank also offers pre-approved loans to its women customers, for up to Rs. 3 lakh.  Any woman between the age of 21 and 60 years can apply for this loan. You should be employed for at least two years in order to qualify for the loan. This loan is currently available across 40 cities. Your minimum salary needs to be Rs. 12,000 per month to be eligible for this loan.
   • Loan highlights
     • Exclusively for women
     • Multiple offers on products
     • Pre-approved loan available
   • SBI Pensioners’ Personal Loan – It is not easy for a pensioner to get a Personal Loan and that is the reason why SBI has a dedicated Personal-Loan scheme for pensioners. Under the scheme, pensioners up to the age of 76 years can avail Personal Loans. The minimum amount that can be availed is Rs. 25,000 while the maximum is pegged at Rs. 14 lakh. However, only 18 months of the pension amount is considered as the maximum loan eligibility. This is also subject to the maximum loan ceiling. Also, the EMI cannot exceed 50% of your pension amount.The maximum repayment period is 60 months, subject to the condition that the borrower will be 77 years at the end of the repayment period. The best part is that pensioner’s family (that is, the spouse receiving pension after the pensioner’s demise) can also get a Personal Loan under the scheme. While pensioners don’t need to provide any collateral, family pensioners might need a guarantor for their loan. The current interest rate is pegged at 3.8% above the two-year MCLR rate.

• Loan highlights
  • Exclusively for pensioners
  • No collateral required
  • Maximum age limit of 76 years

  Education Loans

  3. KVB Education Loan – This loan is provided by Karur Vysya Bank for students who want to finance their study courses in India or abroad. Under the scheme, borrowers can apply for the loan with their father or guardian as a guarantor. Here, they become joint borrowers of the loan. The bank will waive the third-party guarantor requirement if it feels that the parents/guardians have sufficient networth. This is unlike loans offered by other lenders where you need to compulsorily bring in a third-party guarantor for your education loan. This parent/guardian guarantee is applicable for all loans that are less than Rs. 7.5 lakh. For loans over Rs. 7.5 lakh, you need to provide collateral security in the form of an asset such as a house or investments. The bank grants loans to students who have secured admission under the management quota. Note that many other lenders do not accept management-quota students as borrowers.The best part of this loan scheme is that the interest rate for female students is lower than those for male students. Currently, the rate for Education Loans up to Rs. 7.5 lakh is pegged at one-year MCLR plus 3.10% for boys and one-year MCLR plus 2.6% for girls. If a boy applies for a Rs. 5 lakh loan at 12%, the total interest due would be Rs. 1,67,333 while it would be only Rs. 1,59,778 for girls (given that interest rate is 0.5% lower). Even for boys, the interest rate is much lower than what most private lenders are currently offering, which is MCLR plus 5%-7%. The effective rate works out to 15%-17%, which is quite high. As of now, the bank is not charging any processing fee for this loan.

   

  3. Loan highlights
     • Third-party guarantee might be waived
     • Lower interest rate for girls
     • No processing fee
  • PNB Saraswati Education Loan – This loan is provided by Punjab National Bank for students who want to finance their study courses in India only. Under the scheme, the courses chosen should be ones that are ‘approved’ by PNB. These include colleges that are approved by Government bodies or regulatory authorities such as AICTE and AIBMS. Most expenses incurred by the student are covered by the loan including insurance premium purchased for the student borrower (this is not covered by many other lenders) and purchase of a computer or laptop. The loan also covers study tours and project work that is undertaken as part of the course. The bank considers management-quota students only on a merit basis.Among all the lenders, PNB is among the few that give the maximum loan tenure of 15 years for an Education Loan. On an average, most lenders require you to repay your loan within 7-8 years. This would lower the EMI on the loan considerably. For instance, if you were to take a loan of Rs. 6 lakh at 12% for 8 years, your EMI would work out to Rs. 9,752. If you were to take the same amount of loan for 15 years, your EMI would be just Rs. 7,201.Also, the interest rates are much lower than those offered by private banks. Currently, the rate is fixed at base rate plus 2% for loans up to Rs. 4 lakh, base rate plus 3% for loans between Rs. 4-7.5 lakh and base rate plus 2.5% for loans over Rs. 7.5 lakh. Note that if you provide an asset such as a house as collateral, the interest rate will be only 1% above the base rate, which is perhaps the cheapest in the industry. At present, the bank does not charge a processing fee or prepayment penalty for this loan. The repayment holiday is the course period plus one year. During this holiday, only simple interest is charged on the loan.

   

  • Loan highlights
    • Higher loan tenure
    • Lower interest rate
    • Simple interest on loan during repayment holiday
  • IDBI Bank Education Loan – IDBI Bank has separate loan schemes for students opting for non-vocational courses, vocational courses, students under management quota and students under the Financial Inclusion Program. There is also a separate loan scheme for the physically challenged.For vocational courses, no collateral is required but the maximum loan amount is only Rs. 1.5 lakh, while for non-vocational courses, no security is required for loans up to Rs. 4 lakh. The maximum loan amount for students who opt for non-vocational courses as well as for management-quota students is Rs. 20 lakh.  However, the maximum repayment period for non-vocational courses is 15 years, while for management-quota students, it is only 10 years. Working professionals, who are looking at executive programmes, can also apply for an Education Loan from IDBI Bank. IDBI Bank allows those who come under the weaker economic section with earnings below Rs. 4.5 lakh to avail the Interest Rate Subsidy Scheme announced by the Central Government. Under this scheme, the full interest amount in the moratorium period of the loan is waived.The interest rate offered by the bank is also low. For those studying in premier institutes, the interest rate is equal to the base rate. For vocational courses as well as non-vocational courses with a loan up to Rs. 10 lakh, the rate is base rate plus 1%. For others, it is base rate plus 2%.  In most cases, the current rate works out to about 9.5%-12%, which is much lower than what private lenders are charging.

   

  • Loan highlights
    • Interest rate subsidy for the economically weak
    • Lower interest rate
    • Loans available for almost all courses

  Conclusion

  All banks have their own loan schemes and it is not possible to compare schemes across all the banks in the country. The best thing to do is to first talk to your own bank, especially if you have had a relationship with them for a long time. Banks do value relationships and are likely to provide you with the best of offers. It doesn’t hurt to ask around among your family and friends. You could also read reviews online in order to assess a bank’s aftersales service.

  Note: All information on rates and schemes are valid as of the time of this writing.

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