Types of Loan: Which Loan is the Cheapest Interest Rate & EMI?

The easiest way out of a financial turmoil seems to be a loan. There is a plethora of options available when it comes to opting for loans, debtors can choose choose a plant that best fits their needs. For instance, if you want financial backing for pursuing higher education you can opt for an education loan. Similarly, if you want to purchase a brand new car you can choose a car loan. However, if you are trying to get a loan without collateral, then personal loan is an ideal choice for you.

A common question asked by a lot of people willing to opt for loans is that what the cheapest types of loans are? In simple words which type of loan comes with the lowest rate of interest so that at the end of the repayment period the debtor has to pay only the principal amount.

Every loan has a different purpose and hence a different interest rate. The interest rates of loans are based on the purpose and the degree of risk associated with the repayment. In this thread, we will take a close look at different types of loans, their respective purposes, interest rates, and their overall credibility in terms of cost.

Types of Loans

1. Personal Loans

First, on the list, we have personal loans that are unsecured forms of loans that come with minimal documentation and are approved and disbursed easily. The best part about personal loans is that they can be used for several purposes such as marriage, education, medical emergencies, etc.

One of the main reasons behind the immense popularity of personal loans is that they are unsecured which means that there is no requirement of collateral. On the other hand, most of the other types of loans require some sort of collateral for approval and processing of personal loans. The rate of interest in the case of a personal loan will depend on the credit Score of the debtor. If the debtor has a decent credit score there are chances that the loan will be issued at a lower rate of interest and if the credit score is poor the rate of interest will be higher.

2. Vehicle Loan

If you are looking forward to buying a vehicle, be it that classy sports bike or that exotic luxury sedan you can opt for a vehicle loan. Technically, vehicle loans are not kept in the category of secured loans principally due to their depreciating value. However, vehicle loans are one of the cheapest available loans in the UAE.

The interest rates range anywhere between seven to fourteen percent and the maximum loan amount is usually equivalent to approximately eighty percent of the on-road value of the vehicle. The repayment and EMI structure are dependent on the provider and tend to vary from one another.

3. Gold Loan

Gold is not just limited to having ornamental value but it is a valuable asset, also an investment. People have been lending money against gold for ages now. This practice is still continued in the UAE, now in a more organized way making it one of the best forms of loans.

The process of opting for a loan is quite simple; you take your gold to the bank for value evaluation. Your gold will be kept safe in the locker and the moment you repay the loan your assets will be handed back over to you. The rate of interest in case of a gold loan is usually on the lower side because the amount is pledged by gold making it a fair deal. The rate of interest typically ranges from ten to sixteen percent but might vary from provider to provider.

4. Home Loan

Most of us spend our entire lives working to fulfil the dream of having our own house. A home loan plays a crucial role in fulfilling this dream. There is a myriad of banks and financial institutions that offer home loans at affordable rates. Typically, home loans in UAE are cheap and the rate of interest varies from seven to thirteen percent depending upon the provider. The maximum loan amount is usually equivalent to seventy to seventy-five percent of the total value of the property.

In a Nutshell

The credit score of the applicant plays a crucial role in determining the final interest rate and thereby the overall cost of opting for loans. Before you make up your mind and opt for a loan make sure to plan your finances wisely so that you could repay your loan on time. Furthermore, always compare different providers and products before making the final decision.