Loan & Credit Terms, Explained Simply
EMI fine print, credit jargon and loan terminology — every term explained with real numbers so you borrow smart and pay less interest.
On this page (5):
Car Loan
A car loan is a secured loan to purchase a new or used vehicle, with the vehicle itself as collateral. Banks typically finance 80-90% of on-road price for new cars. Tenure ranges from 1-7 years with interest rates starting from 8.5-10%. Prepayment has no penalty for floating rate loans.
A ₹8 lakh car loan at 9% for 5 years has an EMI of ₹16,607, with total interest of ₹1.96 lakh over the loan tenure.
Credit Card
A credit card is a financial tool issued by banks that allows you to borrow money for purchases up to a pre-set credit limit. You get an interest-free period of 20-50 days if you pay the full bill by due date. If not paid in full, interest rates are typically 24-42% p.a. Credit cards can earn reward points, cashback, and travel benefits.
Using a premium credit card for a ₹50,000 flight booking can earn you 5x reward points worth ₹2,500, plus complimentary lounge access.
Loan Against Property (LAP)
LAP is a secured loan where you pledge your residential or commercial property as collateral. You can borrow 50-70% of the property's market value at lower interest rates than personal loans (8-12%). Tenure can be up to 15-20 years.
Pledging your ₹1 crore apartment, you can get up to ₹60-70 lakh LAP at 9% for 15 years, much cheaper than a 14% personal loan.
Personal Loan
A personal loan is an unsecured loan that can be used for any purpose — medical emergencies, wedding, travel, debt consolidation, or home renovation. Interest rates range from 10.5% to 24% depending on credit score and income. No collateral required.
A ₹5 lakh personal loan at 12% for 3 years has an EMI of approximately ₹16,607, with total interest of ₹97,854 over the tenure.
Loan Prepayment / Foreclosure
Prepayment means paying off part or all of a loan before the scheduled tenure. RBI mandates zero prepayment penalty for floating-rate home loans. Prepaying in early years saves maximum interest since interest component is highest then. Part-prepayment can significantly reduce total interest and tenure.
On a ₹50L home loan at 8.5%/20 years, prepaying ₹5 lakh in year 3 saves ₹12+ lakh in total interest and reduces tenure by 3+ years.