Classification of Loan

In this tutorial is divided into 4 points covering various important part of Classification of Loan. This tutorial is a quick summary of the Classification of Loan.

1. Sector Classification:-

Priority Sector Loan:- Priority sector loan means that there are some areas in our country where development is very important such as Agriculture, MSME(Micro, Small, Medium Enterprieses), Export credit, Education, Housing, Social infrastructure, Renewable energy, Other(Weaker section) and RBI(Reserve Bank of India) RBI has told banks that you will have to distribute 40% of your ANBC to PS(Priority Sector).

Non Priority Sector Loan:- When banks invest in large companies or foreign countries according to themselves, it is called non-priority sector.

2. Purpose Classification:- 

Term Loan:- It is a loan that is taken for a period of time like two three four five years.
Example: Home Loan, Education Loan, Vehicle Loan etc.

Working Capital:- Businessmen usually take this loan for their daily expenses.
Example: Credit Card, Personal Loan, Overdraft, Cash Credit etc.

3. Period Classification:-

Demand Loan:- In this type of loan, the bank tells you the time when to pay the money and in this type of loan there is no installment because the money has to be deposited at one time.
Example: Overdraft, Cash Credit etc.

Term Loan:- It is for a time period and has an installment, plus the bank gives people a certain time period to repay the loan.
Example: Home Loan, Education Loan, Vehicle Loan etc.

4. Security Classification:- 

Secured Loan:- Suppose a person asks for a loan form a bank, the bank will give a loan to person but the bank wants security in return like gold, jewelery, FD Certificate etc. so that if person commits any dishonesty, the bank can recover its money, this type of loan is called Secured loan.
Example: Home Loan etc.

Unsecured loan:-

• No property is taken in this loan.
• Because the property is not mortgaged in unsecured loan, it is expected to be fraudulent.
• Therefore the bank charges a high interest rate in it. 
• Unsecured loan is available quickly if the credit score of the borrower is correct and paperwork is also less in this loan.
• Example: Credit Card, Personal Loan etc.