What Is Retail Loan Definition Varieties And Advantages

A retail loan can help you meet your need for funds instantly. The loan amount can be used for anything and does not have any end usage restriction. Both big ticket and small ticket purchases can be made using these loans, and they can then be paid back in EMIs. There are many types of retail loans, and you can choose a loan suitable to your specific needs.

What Is A Retail Loan? 

A retail loan is a loan that is curated to meet the financial needs of individuals rather than businesses. Both banks and NBFCs provide this loan. If you want to make some immediate purchases but do not have the required funds for it, then you can go in for retail loans. The loan terms and conditions depend on the borrower’s creditworthiness, repayment capabilities, and income. The interest rates that you will have to pay for these loans depend on the market conditions, loan amount, tenure, and credit history of the borrower. 

What Are The Types of Retail Loans?

Various types of retail loans are:

• Personal Loans

Personal loans are unsecured loans and are not backed by any collateral. They are the best loans one can get to fund their immediate financial needs. They don’t have any end usage restriction and can be used for various purposes like medical emergencies, home repairs, vacation expenses, etc. 

• Home Loans

Everybody wants to buy their dream house but may not have sufficient funds to invest in purchasing a home. If they take a home loan, they will be able to purchase a home easily. A housing loan has flexible repayment options and reasonable interest rates. Moreover, you can easily pay back your loan within a period of 20 to 30 years. 

• Vehicle Loans

Vehicle loans help you fund the purchase of your dream vehicle whether a new car, used car, or a two wheeler. You will have to pay a certain amount as down payment, and the remaining amount can be paid in EMIs. The interest rates offered on vehicle loans vary across lenders. So, you must do a thorough research about various lenders in the market and then proceed towards taking a loan. 

• Education Loans

Expenditures made towards education can be quite expensive. It includes tuition fees, accommodation, etc. If an education loan is taken , it will be easier for individuals who want to pursue higher education in India or abroad.  This loan can either be secured or unsecured Compared to other loans like credit card loans, personal loans, etc. education loans have a lower interest rate. Also, they have lengthy repayment tenures giving students a lot of time to repay their loans.

• Credit Card Loans

When you have an emergency, you can take a loan against your credit card i.e. against the credit limit that has been assigned to you. After the approval of the loan application by the bank, the amount gets credited to your bank account. This loan can be repaid back in monthly instalments, and the components of the EMI amount are the principal amount as well as the interest charged by the bank. The interest charged by the bank varies with the terms and conditions of the loan. Before taking a credit card loan, you should do a thorough research on the interest rates offered by various banks. Banks charge a high-interest rate on credit card loans, so it is better to shop around for the most feasible interest rate. 

Advantages of Retail Loans

• The application process is user-friendly and easy. 
• Retail loans help you achieve your financial goals without having to pay the entire amount upfront. You can repay the loan in monthly instalments and buy anything that you wish to with the loan amount
• Retail loans offer finance for various purposes: Retail loans are of various types like home loans, personal loans, credit card loans, educational loans, vehicle loans, etc. 
• Retail loans are easy to obtain: Banks and other financial institutions have a simple and straightforward application process. This makes it convenient for individuals to apply for this loan. Many online lenders also have a quick disbursal policy, and you will be able to receive the loan amount within 24 hours. Further, retail loans usually have a lower interest rate compared to other forms of credit such as credit cards and so on. 
• Flexibility in Tenure: Retail loans have flexibility in tenure. So you can choose a duration according to your repayment capacity. 
• It improves your credit score:  Taking a retail loan can be a great way to build your credit score. Making timely repayments shows that you can handle your finances with discipline. This will be a good thing for obtaining future credit. 

Disadvantages of Taking a Retail Loan

• Higher Interest Rates and Additional Fees: The interest rates and additional fees can spike over a time period, making the loan more expensive. It is essential to carefully evaluate the terms and conditions of the loan before applying for it.
• It Could Cause A Financial Strain: If you fail to make timely repayments of your EMIs, then it will cause a financial burden. 

Eligibility Criteria for Retail Loans 

• Age: For most lenders, borrowers must be 18 years and above 
• Income: Lenders usually require borrowers to have a minimum level of income. This varies depending on the loan amount and credit history.  Before applying for the loan, applicants must check the income requirements of the lender. 
• Credit score: It is essential to have a good credit score for retail loans. A higher credit score means higher chances of approval. 
• Employment: To be eligible for retail loans, borrowers must have a steady source of income. They can be employed, self-employed, or have stable means of income. 
• Other factors: Other factors influencing the eligibility include the borrower’s current financial obligations, debt-to-income ratio, and length of time at their current residence or job. It is recommended to evaluate these factors before you take a retail loan. 

Documents Required For a Retail Loan

Conclusion

After reading the above, hope you have understood what a retail loan is, the eligibility criteria, documents required, etc. So, now, you can easily apply for a retail loan. 

FAQs about Retail Loan

1. Give an example of retail loans 

Buy Now Pay Later or BNPL is the best example of a retail loan. For BNPL ,consumers can buy an item and pay for it in instalments over a specific period of time. Payments can happen weekly or monthly. BNPL is an interest-free form of credit, and may sometimes require an initial amount of deposit. 

2. What are the various channels for retail banking?

The different channels for retail banking are physical branches, ATMs/Kiosks, telephone/call centres/IVR, and internet mobile banking.