Personal loans are of different types and several factors can determine the particular type you should go for. Many of the types of personal loan available are not secured with fixed payments. At the same time, there are secured types of personal loans and you can equally access variable-rate loans to meet your financial needs. The length of time required to pay back the loan and your credit score goes a way to determine the particular type of personal loan you can access. In this write-up, we will show you the various types of personal loans and leave you to decide which one is the best for you.
Unsecured personal loans
This type of personal loan is very common. The loan is termed “unsecured” because it is not backed by collateral, like your car or home. As a result, such a loan is somewhat risky to the lender. Since the loan is not secured, the lender is compelled to charge a slightly higher interest rate; the interest rate in this situation is usually between 5% and 36%. The repayment period can also be between one year and seven years.
Secured personal loans
You will have to provide collateral before you can have access to a secured personal loan. If you fail to pay up the loan when the due date arrives, the lender will have to seize the item you have provided as collateral. Secured loans are also of different types, examples of which hare car loans and mortgages. Mortgages are secured by your house, while car loans are secured by your car title
You can get secured loans from places like online lending companies, credit unions and banks. At these places, you can easily take a loan against any asset you have, your savings or even your car. Secured loans carry lower interest rates compared too unsecured loans; this is because they are not as risky as unsecured loans.
Many of the personal loans available out there today come with fixed interest rates. As a result, the monthly payment and the interest rate on the loan will remain the same for as long as the loan lasts. This type of loan is the best for those who are looking for a fixed or consistent installment payment each month. As a result, you will never have to worry about an increasing rate on long-term loans. It will be a lot easier to plan your budget if you have a fixed rate. This is because you will never have to worry about changes in loan payment from one month to another.
Loans in this category are the opposite of the fixed-rate loans. In this situation, the interest rate is tied to a benchmark dictated by the bank or the lender. The rate on the loan can vary depending on the fluctuation in the benchmark set by the lender. Your total interest costs and the monthly payment can also determine the variability.
Variable-rate loans come with lower APRs in comparison to fixed-rate loans. The low APRs make it somewhat more attractive to different categories of borrowers. If you need a loan with short repayment term, then a variable-rate loan is the best to consider.
Debt consolidation loan
In this type of loan, your multiple debts will be rolled into a single one and paid off on installment as if you are paying a single debt. The loan also comes with a far lower APR compared to the old loan that got consolidated into a new one. Debt consolidation translates to the simplification of your debt repayment, which happens via the combination of all the debts you owe into a single debt so that you will only pay a single installment every month.
If you do not have a credit history or a very thin one and be unqualified for a loan on your own, you can go for the co-signed loan. A co-signer will be expected to pay the loan if the borrower fails to pay the loan. The co-signer will, therefore, act as insurance for the lender. Your chance of being accepted for the loan application will be boosted a great deal if the co-signer has a good credit history. The loan also has a much lower interest rate, as well as, a more favorable term than many other types of loans.
Personal line of credit
A personal line of credit is referred to as revolving credit. There is more similarity between this type of credit and a credit card than a personal loan. In this type of loan, you can easily borrow any amount of money you need ass the need arises after you have been given access to a credit line; this is unlike personal loan in which you will be given a lump sum of cash at once. If you have emergencies or ongoing expenses that you will need to borrow money for, then a personal line of credit is the best for you.
This is yet another type of loan and it is also considered as an unsecured loan. However, you will be required to pay back this loan on your next payday. It is different from any of the loan types discussed above because it is not paid on installment over a given period. The amount you can get as a payday loan is usually low; it is usually a few hundreds of dollars; it can be less at times. Also, payday loans are short-term loans. The interest rate is also usually high. The fact that it is an unsecured loan makes it a rather risky investment for the lender. The ARPs of such loans can even be in the triple digits sometimes.
Credit card cash advance
It is also possible to get a loan through your credit card. The credit card loan or cash advance is also a short-term loan and it can be given to you by your bank. You do not have to enter into the bank to get such a loan; simply slot your credit card into an ATM to get the cash advance. This method of getting a loan may be easy, but it is usually very expensive consequent of the huge interest rate on it.