What Are the Different Types of Personal Loans Available?
Personal loans can be used for various purposes, including consolidating debt, paying for home improvements or medical bills, or managing other financial needs.
But the different types of personal loans are not all created equal. The best type of loan depends on your individual needs and situation.
Unsecured personal loans.
Unsecured personal loans are loans that aren’t backed by collateral. In other words, you don’t have to put up anything of value as a guarantee that you’ll pay back the money.
That means if you default on your loan and the lender can’t get their money from anywhere — such as if there isn’t any property left after foreclosure or repossession — then they won’t be able to get it from you either because nothing is tying them together.
Cosigned and joint loans.
A cosigner is someone who signs on to the loan to guarantee repayment of the debt. A joint account holder shares full responsibility for paying back the debt.
For example, if you’re applying for a car loan and your parents are willing to help pay it off, they can be added as cosigners on the loan agreement.
The interest rates will likely be higher than those offered by personal loans with no cosigner required, but this may be worth it if you have trouble getting approved otherwise.
There are some potential drawbacks to having an additional person involved in your finances:
Because their credit score will also influence whether or not they qualify for a loan and what rate(s) are available, even if they haven’t incurred any financial obligations, having bad credit could harm them.
In addition, some lenders won’t allow anyone else other than spouses or domestic partners (including same-sex couples) as joint borrowers or cosigners, which means that even though friends or family members might want to help out financially when times get tough (and maybe even want us around), sometimes we can’t legally do so.
Secured personal loans.
A secured personal loan is one that is backed by collateral. The borrower must provide the lender with a specific asset, vehicle, jewelry, or house as security for the loan.
If you default on your payments, the lender can repossess (take back) your collateral and sell it to recoup their losses.
The lender will typically require you to make a down payment deducted from the total loan amount.
The interest rate on a secured personal loan can be lower than on unsecured loans because there is less risk for both parties.
Personal lines of credit
Personal lines of credit are unsecured loans available whenever you need them. They can be used to finance everything from debt consolidation, home improvement projects, and medical expenses to vacations and weddings.
These personal loans can be very beneficial if you have trouble obtaining a traditional loan or are looking for an alternative option.
Unlike most other types of personal loans, this one does not require collateral or a co-signer for approval, but it also comes with higher interest rates and fees than some other alternatives.
When it comes time to pay back the money borrowed, there is no set date; instead, borrowers simply pay as they go along until they’ve paid off their entire balance.
In other words: unlike other types of loans where there’s usually only one lump sum payment due at the end (and then your debt is gone), this type makes it possible for you to keep paying back what you owe over time so that no matter how much money gets paid back each month there will always be more left over than before (and thus less overall interest).
This makes sense because even though payday loans are typically structured like this too, with monthly payments deducted automatically from an account linked directly into theirs, they’re often considered predatory due largely because these lenders charge extremely high-interest rates, which could easily reach 40% or more per year if not handled correctly.”
Secured personal loans
Secured personal loans are one of the most popular types of personal loans. A secured loan is backed by collateral, so you’ll need to provide an item that can be repossessed if there’s ever default on your loan.
The most commonly used form of collateral for secured personal loans is a vehicle: borrowers use their cars for security when they want more money than they can get from an unsecured loan. However, in some cases, boats and other valuable items may also be used as security for secured personal loans.
Personal loans are one of the most popular types of personal loans available. They are ideal for those who need quick cash and aren’t able to wait until they get paid.
Personal loans can be used for almost anything, including paying bills or buying things like your dream home.
Personal lines of credit also offer low-interest rates, flexible payment options, and no credit history requirements, making them perfect for anyone looking for a loan solution that fits their needs.