A personal loan is a type of debt you can get from a bank, credit union, or online lender. It can be secured or unsecured. A personal loan can be used for many different things. First, the loan money is given out as a lump sum. Then, you repay your lender in installments over a set time, usually between one and seven years.
Before you borrow the money online, you need, compare the different types of loans that are available. Frank Glemstone from MoneyZap, online lenders platform, says that this will help you make the best financial decisions for your unique situation. Keep reading to learn more about the types of personal loans and which may be the best for you.
What Are the Different Kinds of Personal Loans?
Secured Personal Loans
You must use an asset as collateral to get a secured personal loan. For instance, you could get a loan against your car, which is called a “title loan.”
This loan type is a good choice if you have a low credit score and something you can use as collateral. But there’s a catch. If you don’t make your loan payments on time, the lender could take your asset and sell it to get the money you owe them.
Unsecured Personal Loans
For this loan type, you don’t need collateral to get approved. So you can get payday loans, no credit check loans or quick loans in Ohio, for example, without putting your assets at risk or maybe without even checking your credit score.
Personal loans without collateral (unsecured personal loans) are best for people with good or excellent credit. But since the lender is taking on more risk, you’ll likely pay more interest than a secured personal loan.
Debt Consolidation Loans
People often use debt consolidation loans to save money on interest and pay off their debts faster. The process of paying back the loan is also made easier for the borrower.
The idea is to get a loan with a lower interest rate than what you pay now on the debts you want to combine. Then, you’ll use the money from the loan to pay off those balances and make payments on a new loan for a set amount of time. The best-case scenario is that you’ll save hundreds or even thousands of dollars in interest and pay off your debts faster.
Co-signed and Joint Loans
If you need help getting a personal loan on your own, a lender might let you borrow with the help of a co-signer. This person should have a good credit history and be willing to pay off the rest of the loan if you can’t.
Some lenders also offer joint loans, which let both people who want to borrow the money get the money. Like co-signed loans, both parties must pay back the loan. To improve your chances of getting a loan, your co-borrower must have good or excellent credit.
Fixed-Rate Loans
Fixed-rate loans have an interest rate that stays the same over the time it takes to repay the loan. So, the borrower pays the same amount each month for the whole length of the loan.
This is where most personal loans fit. Since the loan payment won’t change over time, it’s easier to plan for it in your budget.
Variable-Rate Loans
The interest rate on a variable-rate loan changes over time. So if the benchmark rate set by banks changes over time, your monthly payment could go up or down.
Even though it’s hard to plan your budget around variable-rate loans, the rates are sometimes lower than fixed-rate loans. This type of personal loan should only be considered if you only need money for a short time.
Personal Line of Credit
A personal line of credit works like a credit card. You can access a pool of funds from which you can borrow whenever you need. However, when you get a personal loan, you have to pay interest on the whole amount. With a line of credit, you only pay interest on the amount you use.
This loan product is suitable for people who want a safety net to use when needed.
Buy Now, Pay Later Loans
Buy now, pay later loans let people buy things without having to pay the total price all at once. Instead, the balance is split into equal parts. Then, you repay your lender in equal weekly or biweekly installments.
These loans are usually distributed through mobile apps, such as Afterpay, Klarna, and Affirm. If you can show that you can pay back the loan, you might be able to get a “buy now, pay later” loan even if your credit isn’t great. Most lenders will look at how much money you have in your bank and may do a soft credit check. Such steps will help your credit score.
