What Are the Different Types of Personal Loans That Exist Today?
Are you looking to get approved for a personal loan? There’s a lot you need to know about before applying.
Everyone has different reasons for applying for a loan. Whether you’re consolidating your debt or you’ve come upon an unforeseen medical expense, there’s a loan that’ll help you get out of your financial jam. If you know which type of loan to apply for, you’ll always increase your chances of both getting approved and being able to pay it back.
In this post, we’re going to go over a few of the different types of personal loans that are out there. Read on and you’ll have a better understanding of the loan that you want to get.
An unsecured loan is one where you aren’t putting any of your personal belongings or assets up as collateral. Most personal and small business loans fall into this category, but they require a higher credit score in order to qualify.
The good thing about an unsecured loan is that you’ll receive a lump sum and have the option of paying it back incrementally over a set period of time, usually several months or even years. The bad thing is that you kind of need a steady income to make one of these work.
Secured loans, on the other hand, do require you to put up collateral. This makes them riskier for the borrower because they’re borrowing against their home or car, so if they default on the loan, the lender can seize whatever the collateral was.
For obvious reasons, these are easier to get and more affordable loans in general. Not all that many banks and lenders offer secured loans anymore because of the hassle, but you can find them through lenders like Easy Title Loans, who let you borrow against your car title.
Fixed and Variable-Rate Loans
A fixed interest rate loan has terms that stay the same over the course of the loan. Most unsecured loans are like this because it allows you to budget for your loan payments because they’re the same every month.
Variable-rate loans can fluctuate based on an index rate, so payments can go up and down based on the interest. This can have its pros and cons, which is why most people prefer fixed-rate loans over variable-rate.
A payday loan is a very short-term loan (2-4 weeks) and is usually only worth around $500 dollars. These are meant to give you emergency funds until you receive your next paycheck, upon which you’ll pay back the loan.
The good thing about payday loans is that they rarely require a credit check. The issue with them is that they have extremely high fees and interest rates, and often create a debt cycle for borrowers. If you can’t pay off the loan by the deadline, it’ll roll over into another payday loan, which can make it difficult to climb out of.
Finding the Right Types of Personal Loans for Your Needs
These are a few of the main types of personal loans that you can get. It’s important to learn about what each one offers so you can apply for the one that fits your needs as a borrower. When it comes to your finances, you always have to be careful and do your research before you take out a loan.
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