A personal loan is a great way to move forward with the things that you’ve got going on in your world. Whether you’re paying off old debts, making necessary purchases, or taking on a project that requires a bit of money to get started, a personal loan will help you do it.
But what are the types of personal loans, and how do they differ from one another? In this article, we’re breaking down the most common types of personal loans that you can get with a bank or a credit union.
In doing so, we’ll be able to help you find the right loan to meet your needs and get you on the road to progress.
Keep reading to get the inside scoop on personal loan options!
Secured and Unsecured
A secured loan is a loan backed by collateral through assets, typically in the form of a home or car. This gives the lender security if the borrower is unable to repay the loan, as they can seize the collateral to recoup their losses.
Unsecured loans, on the other hand, are not backed by collateral and therefore tend to have higher interest rates to offset the risk to the lender and are more difficult to qualify for.
This means that if you default on the loan, the lender will not be able to seize any of your assets. Secured loans are typically used for larger purchases, such as a home or a car, while unsecured loans are best suited for smaller amounts, such as credit card debt.
Fixed-Rate and Variable-Rate
With a fixed-rate loan, the interest rate stays the same for the life of the loan. This means your monthly payments will never change, and you should pay bills on time.
With a variable-rate loan, the interest rate can change over time. This means your monthly payments may go up or down.
Co-sign and No Co-sign
A cosign personal loan is one where you need a guarantor to sign the loan along with you, which means that someone else is responsible for the loan if you can’t pay it back.
This type of loan is more difficult to qualify for but may have a lower interest rate. This is typically used when someone is attempting to get a loan with little to no credit history.
A no cosign personal loan does not require a guarantor. This means you are solely responsible and may have a higher interest rate.
Peer-to-peer loans are loans that are made between individuals, without the involvement of a bank or other financial institution, these are loans that are funded by investors.
They tend to have lower interest rates than both unsecured and secured loans, they may be more flexible in terms of repayment. However, because they are not backed by collateral, they may be considered riskier.
Installment loans are paid back in fixed, equal payments over a set period, typically two years or longer. Because they have a set repayment schedule, borrowers can budget their monthly payments.
This type of loan is often used for smaller purchases, such as a television or a piece of furniture.
Revolving credit, such as credit cards, does not have a set repayment schedule. Instead, borrowers are required to make a minimum monthly payment, which is typically a percentage of the outstanding balance, plus any interest and fees.
Payday loans are a type of unsecured loan, which means they are not backed by collateral.
This makes them riskier for the lender, but they can be good personal loan options for borrowers who need a short-term loan, and need cash now that can’t qualify for a traditional bank loan.
They are a type of short-term, high-interest loan that is typically due on your next payday. Payday loans can be difficult to repay and can often lead to a cycle of debt.
Title loans are a type of secured loan where the borrower uses their asset title as collateral. The lender can then repossess the asset if the borrower fails to make the repayments.
They are often used by people with bad credit who may not be able to get a loan from a traditional lender. The interest rates on title loans are usually high, but they may be an option for people with poor credit who need money now.
For more reference, you can check FastLoanDirect on how to get loans with poor credit.
Pawnshop loans are one of the main types of personal loans. They are typically used by people who do not have access to other sources of credit, such as banks or credit unions. They are usually for a small amount of money, and the interest rate is typically high.
The borrower pledges an item of value, such as jewelry, as collateral for the loan. If the borrower is unable to repay the loan, the pawnshop has the right to sell the collateral to recoup the loan amount.
Cash Advance Loans
Cash advance loans are quick loans that are typically used to cover unexpected costs or expenses. These loans are typically short-term, with repayments due in full within a few weeks or months.
Interest rates on cash advance loans are typically higher than other types of personal loans, as they are considered to be higher risk.
Choose Between the Types of Personal Loans
The main types of personal loans are unsecured, secured, and co-signed. Unsecured personal loans are typically for smaller amounts and have higher interest rates. Secured personal loans are backed by collateral and typically have lower interest rates.
Co-signed personal loans are when someone else agrees to be responsible for the loan if you can’t repay it. Personal loans can help you cover unexpected costs or consolidate debt.
Shop around for the best rates and terms before signing any loan agreement.
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