What Are the Different Types of Personal Loans That Exist Today?
It’s been a tough few financial years for many Americans. Keeping one’s personal finances in check has been difficult. Many families have been pushed to live paycheck to paycheck, with little emergency cash on the side should some sort of disaster spring up.
It’s for this very reason that many people turn to personal loans to help obtain some emergency funds. However, there are many different types of personal loans out there these days, and it is important to learn about the various options.
Which type of personal loan will be right for you? What type of financial institution should you do business with? Read on, and we’ll walk you through the basics.
The most common type of personal loan you’ll find out in the world is an unsecured loan. These are loans that don’t require any type of collateral – the loan isn’t ‘secured’ with the promise of something else.
These loans, while advantageous, often require high credit scores and solid financial backgrounds to obtain.
Typically, you can take out an unsecured loan for any standard type of financial institution, like your own bank.
These loans can be used for whatever you need as long as they are paid back on time and with interest. If you need to cover bills or a large upcoming expense but have a solid financial background otherwise, this kind of loan will often be the right move.
Secured loans can take many different forms, but exist when getting an unsecured loan is more difficult. Borrowers with poor credit scores or unsteady income might search for a secured loan if they can’t get approved for an unsecured one.
Secured loans do rely on some form of collateral. A title loan, for example, is a type of secured loan where a borrower puts their vehicle title up as collateral for the loan. If they can’t pay back the loan, their car could be seized.
A policy loan is another type of secured loan, often offered by insurance companies. With these loans, the cash value of an individual’s life insurance policy is used as collateral. This type of loan is common in the financial strategy known as infinite banking.
These loans also generally come with lower interest rates, which can be advantageous for borrowers with a less steady income.
While loans are generally given out to one applicant, there is such a thing as cosigned loans.
This is when two people sign on to take a loan out. The idea here is that the combined profile of the two borrowers may be enough to get approval for a loan when one alone is not.
The risk is spread out between two individuals, and one may have a much stronger credit profile than the other.
Types of Personal Loans
If you’re looking to get out of a tricky financial situation, you might want to look into taking out a personal loan. There are many different types of personal loans, with the above being some of the most popular.
Getting familiar with these loan types can help you to decide how best to go about your borrowing.
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