What Are the Different Types of Personal Loans That Exist Today?
Do you know all there is to know about personal loans? Are you curious how you can get some extra cash for a big purchase?
If you need to get some extra cash for a big purchase or an emergency, it can be useful to know what the different types of personal loans are. When used responsibly, taking out a personal loan can be a great help for handling unexpected expenses.
Below is a list of the different types of personal loans that exist today.
1. Unsecured Loans
An unsecured personal loan is one of the best personal loan options. These loans don’t require collateral and a variety of borrowers are able to get them successfully. However, unsecured personal loan annual percentage rates (APR) can vary by quite a bit based on a person’s financial health and repayment terms may range from one year to seven.
Unlike secured loans that require collateral, unsecured loans can be a bit riskier for lenders. This means that the APR on these will usually be higher as well.
2. Secured Loans
As opposed to unsecured personal loans, secured personal loans require collateral. If you fail to pay your loan, then this collateral could be taken away from you by the lender. Mortgages are one common type of secured loan, but there are other types as well.
There are a variety of things that you may be able to use as collateral when taking out a personal loan, but it will usually need to have a significant value. You usually won’t be able to borrow the full value of your collateral.
One of the best things about secured personal loans is that the APR will usually be lower than with unsecured loans. This is because these loans will be less risky for lenders overall.
3. Co-signed Loans
A co-sign loan is another type of personal loan that you should be aware of.
This is a great type of loan to consider if you’re a borrower who doesn’t have a long credit history and who may not qualify for another type of loan very easily. With a co-signed loan, a co-signer will apply for the loan with you and will promise to pay back the amount borrowed if you’re unable to.
Even if you’re an otherwise risky borrower, having a co-signer apply for the loan with you can sweeten the deal for lenders and will make it more likely that they’ll get their money back. This means that they’ll be more willing to lend you money even if you wouldn’t qualify for a loan otherwise.
4. Debt Consolidation
Debt consolidation loans are another type of personal loan that you should be sure to know about. If you find yourself in debt and have multiple credit card balances or loans to pay back, it can be helpful to get a debt consolidation loan.
A debt consolidation loan will allow you to roll many different debts into a single loan. This can simplify things for you and can allow you to have a single fixed monthly payment, helping you to keep better track of things while paying off your debt. You may also be able to get a lower APR than what you have on your existing debts as well.
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5. Peer-to-Peer Loans
These days, there are alternative places to look for loans besides traditional financial institutions. Getting a loan from a peer-to-peer lending website is another type of loan option that can be well worth considering. These crowd-funded loans will have multiple individual investors and there will be no financial institution involved.
P2P lending sites can offer personal loans to borrowers while also offering better interest rates than traditional financial institutions do. They may also be easier to get and can be a good option for borrowers who will have a harder time getting a traditional personal loan.
6. Personal Credit Line
A personal line of credit is similar to a credit card and offers borrowers a revolving line of personal credit. Unlike with other types of loans, you won’t get a single lump sum of cash, but will instead get a credit line that you can use exactly when you need to.
A personal line of credit can work well for a variety of purposes. However, keep in mind that it won’t usually be the best option when you need to make a single large payment for a major purchase.
7. Payday Loans
A payday loan is another type of personal loan that you can get in a pinch. However, you’ll need to be extremely careful with a payday loan if you decide to get one.
Payday loans can be risky and are typically targeted towards consumers who have bad credit and can’t qualify for other types of personal loans. Payday loans will give you an advance on your salary. They’re also predatory, however, and they usually come with a lot of fees that can add up quickly.
If you’re considering getting a personal loan, a payday loan is one of the last types that you’ll want to consider getting. If you do decide to get a payday loan, you should do it with extreme caution since it can lead to a cycle of debt if you’re not careful.
Considering the Many Types of Personal Loans That Are Available
If you’re thinking about getting a loan, be sure that you understand the different types of personal loans that are available today. Make sure that you choose the right option if you want to have the easiest time borrowing money.
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