Groww Digest

6 Day Course

Theme: types of loans

Sept 19 to Sept 25, 2022

6 Day Course is a part of our newsletter

series, Groww Digest - all things personal
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Day 1: Monday
6 Day Course | Theme: types of loans

The first kind of loan we'll discuss is called a

secured loan.

In the case of secured loans, the borrower offers

the bank collateral.

If the borrower fails to pay back, the bank can take

over the collateral and sell it to recover the
amount.

A home loan is a classic example of a secured loan.

In case the borrower fails to pay back, the bank

takes over the ownership of the house and sells it
to recover the amount.

Car loans are another kind of secured loan.

Loans can also be taken against property -- money

borrowed for some other purpose using a property
as collateral.

Secure loans are lower risk for the lenders (banks,

NBFCs, etc). Hence, lenders offer lower rates of
interest on secured loans.

Page: 2
Day 2: Tuesday
6 Day Course | Theme: types of loans

Today, let's talk of unsecured loans.

Unsecured loans are loans that are given to a

party or person without collateral.

In this case, the lender will depend on

credibility, reputation, and other such metrics
to determine if the loan is worth giving.

The interest rates of such loans are usually

much higher than secured loans.

Personal loans and small business loans are

two common examples of unsecured loans.

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Day 3: Wednesday
6 Day Course | Theme: types of loans

A third kind of loan is popular in the informal

economy: informal loans.

Informal loans are given out by individuals

and unregistered lenders.

The amounts they lend are usually small. The

interest rates charged are much higher.

There may or may not be collateral required

in the case of such loans.

Sometimes, collateral like gold or land may be

used, while other times it may be based only
on trust.

These loans can get very controversial as

disputes are common.

Low-income business owners like

shopkeepers are common borrowers of
informal loans.

Page: 4
Day 4: Thursday
6 Day Course | Theme: types of loans

NPA - non-performing assets.

When loans are not paid back, lenders try to

recover the amount.

If it is a secured loan, they take over the

collateral. If it is unsecured, they try to contact
the guarantor for the loan to get them to pay.

When they fail to recover, they declare it a

non-performing asset or NPA.

NPA is sometimes written off.

Sometimes, the lender may sell the loan to

another institution that specialises in
recovering NPAs.

These institutions then use various means to

recover the amount. They may not always be
successful in recovering loans.

Page: 5
Day 5: Friday
6 Day Course | Theme: types of loans

In loans, there is a concept that needs to be

understood better.

Guarantor.

Many times when taking a loan, lenders ask for a

guarantor. Guarantors are legally required to
pay the loan in case the borrowers fail to pay
back.

Many people in India ask their friends and

relatives to sign as guarantors. These people
often don’t understand the gravity of doing so.

All guarantors should be explicitly aware of what

they’re getting into.

If a borrower refuses to pay back a loan, and the

guarantor also refuses to pay back the loan, the
lender can take the borrower as well as the
guarantor to the court.

Sign on any friends’/relatives’ loan papers only if

you know what it is and are ready for it.

Page: 6
Day 6: Sunday
6 Day Course | Theme: types of loans

We’ve reached the end of this week’s course that

started on Monday.

Here’s a test you should take. Get pen and

paper!

Question 1:
A home loan is usually a:

-Secured loan
-Unsecured loan

Question 2:
In which case is collateral required

-Secured loan
-Unsecured loan

Page: 7
Day 6: Sunday
6 Day Course | Theme: types of loans

Question 3:
Small business loans that happen in cash form
and without documentation are often called:

-Informal loan
-Cashless loan

Question 4:
NPA stands for

-National Pension Agency

-Non Performing Assets
-Non Pool Assets

Question 5:
Guarantors are required to pay back loans in
case a borrower fails to pay back.

-True
-False

Page: 8
Day 6: Sunday
6 Day Course | Theme: types of loans

Answers:

Q1: Secured loan;

Q2: Secured loan;
Q3: Informal loan;
Q4: Non Performing Assets;
Q5: True.

Page: 9
 That’s it for this week!

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See you next week!

—Groww Digest Team

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