Loan Types Offered by NBFCs
What backs the loan decides what the lender can do when payments stop.
NBFCs lend in places and to people that banks often find too small, too remote or too risky: first-time two-wheeler buyers, small shopkeepers, women's groups in villages, borrowers who need cash against their gold by evening. Each loan type is recovered differently because each has a different security, or none at all.
For a recovery agent, the key question about any loan is: what backs it? A vehicle, gold, a house, nothing? The answer decides what the lender can lawfully do when payments stop.
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NBFC Loan Types and What Backs Them
Vehicle and two-wheeler loans
Security
The vehicle, hypothecated to the NBFC
What recovery usually looks like
Calls and visits; repossession only under a legally valid clause in the agreement
Gold loans
Security
Gold jewellery or coins, pledged with the NBFC
What recovery usually looks like
Reminders; the pledged gold stays with the lender until dues are paid
Microfinance loans
Security
None (collateral-free by definition)
What recovery usually looks like
Collection at an agreed place, often in groups; no security to fall back on
Personal and app-based loans
Security
Usually none
What recovery usually looks like
Mostly phone collection under RBI's digital lending rules
Home loans (mainly HFCs)
Security
The house, mortgaged
What recovery usually looks like
Legal routes such as SARFAESI if dues stay unpaid
Loan against property
Security
Residential or commercial property, mortgaged
What recovery usually looks like
Same as home loans: notice, then legal enforcement
Business and MSME loans
Security
Stock, machinery or property, or unsecured
What recovery usually looks like
Depends on the security; often restructuring talks first
Consumer durable and phone loans
Security
The item bought
What recovery usually looks like
From 2027, device locking only under strict RBI conditions
| Loan type | Security | What recovery usually looks like |
|---|---|---|
| Vehicle and two-wheeler loans | The vehicle, hypothecated to the NBFC | Calls and visits; repossession only under a legally valid clause in the agreement |
| Gold loans | Gold jewellery or coins, pledged with the NBFC | Reminders; the pledged gold stays with the lender until dues are paid |
| Microfinance loans | None (collateral-free by definition) | Collection at an agreed place, often in groups; no security to fall back on |
| Personal and app-based loans | Usually none | Mostly phone collection under RBI's digital lending rules |
| Home loans (mainly HFCs) | The house, mortgaged | Legal routes such as SARFAESI if dues stay unpaid |
| Loan against property | Residential or commercial property, mortgaged | Same as home loans: notice, then legal enforcement |
| Business and MSME loans | Stock, machinery or property, or unsecured | Depends on the security; often restructuring talks first |
| Consumer durable and phone loans | The item bought | From 2027, device locking only under strict RBI conditions |
Gold Loans: The Rules That Get Asked
From RBI's Credit Facilities Directions, 2025 for NBFCs.
- check_circleAn NBFC cannot lend to someone to buy gold, and cannot lend against primary gold such as bullion. Jewellery, ornaments and coins are accepted.
- check_circleLoan-to-value (LTV) caps for consumption loans: up to 85% for loans up to ₹2.5 lakh, 80% for above ₹2.5 lakh up to ₹5 lakh, and 75% above ₹5 lakh. The LTV must be kept within the cap for the whole loan.
- check_circleBullet-repayment consumption loans (interest and principal paid together at the end) are capped at 12 months.
- check_circleAbove ₹2.5 lakh, the NBFC must assess the borrower's repayment capacity in detail.
Microfinance Loans: Why Recovery Is Different
- check_circleA microfinance loan is a collateral-free loan to a household with annual income up to ₹3 lakh. Household means husband, wife and their unmarried children.
- check_circleTotal monthly loan repayments of the household cannot exceed 50% of its monthly income. A lender cannot give a new loan to a household already above that limit.
- check_circleThere is no prepayment penalty, and any late-payment penalty applies only to the overdue amount, not the whole loan.
- check_circleFrom 2027, RBI's rules say collection should happen at a place agreed between the borrower and the NBFC; staff may go to the borrower's home or work only after two or more missed meetings.
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Repossession Needs the Agreement, Not Muscle
Since 2009, RBI has told NBFCs that a vehicle can be repossessed only under a legally enforceable clause in the loan agreement. The agreement must set out the notice period, when it can be waived, how possession is taken, a final chance to repay before sale, how the vehicle is returned, and how it is sold or auctioned. RBI's rules from 2027 restate the same six points.
How the DRA Exam Tests This
Going by the syllabus, expect questions matching a loan to its security (gold loan: pledge; vehicle loan: hypothecation; home loan: mortgage) and on the defining features of microfinance loans. The ₹3 lakh income limit and the 50% repayment cap are the kind of numbers that appear as options.
The trap is security type. In a pledge, the lender holds the item (gold in the locker); in hypothecation, the borrower keeps it (the bike stays with the rider). Mixing these up leads to wrong answers about what an agent can do.
FAQs
What types of loans do NBFCs give?expand_more
Vehicle and two-wheeler loans, gold loans, microfinance loans, personal and app-based loans, home loans (through housing finance companies), loans against property, business and MSME loans, and consumer durable loans, among others.
Can an NBFC seize my bike if I miss EMIs?expand_more
Only under a legally valid repossession clause in your loan agreement, which must spell out the notice period and procedure, including a final chance to repay before the vehicle is sold.
What is the maximum gold loan an NBFC can give against my gold?expand_more
For consumption loans, up to 85% of the gold's value for loans up to ₹2.5 lakh, 80% above ₹2.5 lakh up to ₹5 lakh, and 75% above ₹5 lakh.
Is a microfinance loan secured?expand_more
No. By RBI's definition it is collateral-free, given to households with annual income up to ₹3 lakh.
Next steps
- NBFC Typesarrow_forward
- Pledge vs Hypothecationarrow_forward
- Vehicle Repossessionarrow_forward
- Types of Loansarrow_forward
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